iShares Gold ETF - Update

For some time now I have become increasingly bearish on global equities. Last year I decided to de-risk my portfolio and set out some of my thinking in this article. I have been selling off equities and increasingly moving into cash, government bonds and gold

In the past, I have never been a big fan of holding gold. Obviously it cannot provide an income so that was one reason back when I needed dividend income to bridge the gap after taking early retirement in 2008. But that doesn't mean there is no return...in fact I was surprised to learn that over the past 15 years or so, gold bullion has generated a capital appreciation of 11% p.a. on average.

I think most investors will know that gold is traditionally regarded as a safe haven in times of economic and political uncertainty. It seems uncertainty is becoming the norm - the global pandemic still unwinds, invasion of Ukraine, high inflation and the rising cost of living, global warming and the climate crisis...not surprising therefore that the trust has performed well and is currently at an all-time high. 

In recent weeks we have seen the collapse of Silicon Valley Bank and the serious problems at Credit Suisse following which the price of gold rose to a record high point of £1,634/oz ($2,000). The World Gold Council revealed that central banks had accumulated gold at the fastest pace on record in early 2023 buying a net 125 tonnes. There is speculation that Russia and China are building gold reserves as backing for a new currency to rival the US dollar.

Long Term Gold Price (click to enlarge)

Therefore in times of increasing uncertainty, I believe it would be a mistake to discount the longer term value provided by gold.

I have increased my holding in Personal Assets trust over the past 12 months and that typically holds around 10% in physical gold. However, in late 2021 I decided to add a pure gold ETF to my portfolio - iShares Physical Gold (SGLN) which has been around since April 2011 and with low annual charges of 0.15%. With subsequent top-ups the average price paid was £24.50

Other options could be a fund such as Blackrock Gold & General or LF Ruffer Gold for example but as my platform charges are capped for shares and ETFs with AJ Bell, the iShares option was the better one for me.

So far it has proved to be one of my better investment decisions of recent times. The shares were purchased at an average price of £24.50 and have advanced to currently £31.30 so a handy 28% uplift over the past 18 months. The shares together with the holding of gold in Personal Assets trust now make up around 6% of my total portfolio (ISA and SIPP).

Conclusion

Rightly or wrongly, I increasingly regard the climate situation as the biggest threat to global markets. The unprecedented combination of heatwaves, droughts, storms and melting polar ice sheets suggests that the climate crisis is escalating. The IPCC released its latest report in March giving notice that we are now in the last chance saloon to take decisive action to mitigate the effects of global warming and urging world 'leaders' to actually do what they all know needs to be done. 

Many countries have pledged to reduce emissions at recent COP conferences but few have so far followed through on action. So, I see little sign of any decisive urgency to take meaningful action and think the worsening climate situation could well destabilise global economies.

So, for now I will continue with a more defensive portfolio and to hedge my bets with gold, government bonds and cash.

As ever, this article is merely a record of my personal investment decisions and take on the risk/rewards associated with the current markets. It should not be regarded as an endorsement or recommendation - always DYOR!

Gresham House Energy Storage Trust - Full Yr Results

Since its launch in December 2018, Gresham House Energy Storage (GRID) has developed the largest energy storage portfolio in the country. It operates 20 utility-scale energy storage sytems with a total combined capacity of over 500MW.

As we transition from fossil fuel generation to renewables such as wind and solar, we will increasingly need energy storage solutions due to the intermittent nature of renewable energy - the wind doesn't always blow and there's not much solar in the winter months.

Currently we use gas-fired generation to fill the gap but we have legislated for net zero carbon emissions by 2050 so the ability to store excess energy from an ever increasing capacity from renewables will be essential. As renewable capacity expands, gas-fired power stations will be required less frequently and so they become less profitable to run. This means that renewables are forcing fossil fuels off the grid.

As recently as 2014, coal was our main source of electricity generation. It is still used in the winter months but currently accounts for just 2% of  generation and is due to be completely retired by the end of next year.

GRID has several streams of revenue which include the wholesale market and National Grid balancing mechanism, Firm Frequency Response based on small-scale changes to the grid's electrical frequency, fixed fees for being on call to deliver power at times of extreme need and Triad payments from National Grid when there is peak demand.

Results

The company have recently released results for the full year to end December 2022 (link via Investegate).

Net Assets have increased by 39% per share over the year on a total return basis to 155.5p (last year 116.8p) and share price return is up 29.6% compared to FTSE 100 Index of 4.6%. The share price premium has reduced from around 15% to currently 5%. This was by far my best performing investment over the past year.

Operational revenues increased by 22% to £62m compared to £51m for the previous year. The company is forecasting growth of at least 15% in the coming year.

Over the year, the company has acquired three more storage projects with a total capacity of 141MW. Operational capacity increased by 29% from 425MW to 550MW by the end of the year. Capacity is expected to reach 1GW by the end of 2023 and 1.5GW in 2024. Looking forward, the management are looking to expand overseas and will seek authorisation to invest up to 30% of assets internationally.Looking to the second half of the decade they aim to expand into Europe, US and Australia and have set an ambitious target of 5GW by 2030.

The total UK energy storage capacity has increased to 2.4GW and is expected to grow ten-fold over the coming 3 to 4 years. GRID continue to be the market leader with around a 30% share.

Commenting on the results, Chair John Leggate CBE said 

"In 2022 GRID further built on its strong track record and delivered significant growth in earnings, operational capacity and NAV per share, while maintaining a fully covered dividend as projects became operational. Following GRID's strong trajectory in 2022, the Company has set its ambitions higher going into 2023.

We expect the EBITDA of the underlying investment portfolio to increase in 2023 as more projects are commissioned and operational capacity increases. This should also lead to growth in both NAV per share and earnings per share. As such, we expect to increase our 2023 dividend by 5%.

We are exceptionally well-positioned to capitalise on the exciting battery energy storage opportunities ahead of us in the UK and our targeted international markets.

We expect to see the income generating capacity of the underlying investment portfolio grow as the Fund's operational MW capacity almost triples through 2025, and as MWh capacity grows even faster as we increase the average duration of our portfolio (new projects are increasingly built out to 2-hour duration). Beyond this, it is clear to the Board and the Manager that we are still only in the foothills of the opportunities in the energy storage arena in Great Britain and globally and significant growth beyond 2025 is expected to drive ongoing shareholder returns for many years."

The company has paid a total dividend of 7.0p over the past year as promised and has increased this target by 5% to 7.35p for 2023. This gives a forward yield of 4.6%.

GRID 3 Yr Share Price/NAV

I added this trust to my green portfolio in December 2019 at the price of 105p...its currently 159p and continues to trade at a premium to net assets. The shares currently account for around 6% of my green portfolio with a further 6% invested in Gore St Energy Storage.

The focus so far has been batteries but they are now looking at the potential from solar PV and I am wondering whether they have considered other energy storage solutions such as longer duration flow batteries or green hydrogen as these also have lots of potential.

“Our world needs climate action on all fronts - everything, everywhere all at once” said Antonio Guterres at the launch of the latest IPCC report last month. It emphasised the urgency in addressing the climate emergency and called for investment in clean technologies at scale. (In-depth guide to report from Carbon Brief)

The reality is that fossil fuel generation will gradually be replaced by renewables as we move towards our net zero target by 2050. This means increasing intermittency which will require ways to store energy to bridge the gaps and provide a constant supply.

So, the market looks bright for this sector of the transition to cleaner energy. I may well look to increase my holding in the coming year in the event of further share offering/placing.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!