Global Insights

The disruptive power of decarbonisation: Global Environment Fund & Global Natural Resources Fund

The transition to a low-carbon world is driving an epoch-defining economic transformation. Two Ninety One strategies offer investors different but complementary ways to gain exposure to this powerful trend. Read a summary from the talk at Global Insights 2022.

17 Jun 2022

3 minutes

Tom Nelson
Graeme Baker

The fast view

  • The energy transition, from hydrocarbons to renewables, is a modern-day industrial revolution that will bring about a vast reallocation of capital. In different – but complementary – ways, two Ninety One investment strategies give investors the opportunity to harness this epoch-defining shift.
    • The Global Natural Resources Fund looks for high-quality equities exposed to the opportunities in the natural-resource sector; this includes direct and indirect beneficiaries of the energy transition.
    • The Global Environment Fund seeks to capture the decarbonisation structural-growth story; it invests in companies that are driving the transition to a low-carbon world.
  • These are contrasting portfolios with different return profiles, but both are high-conviction, high active-share strategies that aim to capture the opportunities that we expect to arise as the world progresses towards net zero. Historically, the two strategies’ returns have had very low correlation.
  • The Global Natural Resources Fund is diversified across resources sectors, spanning energy, mining and agriculture. The portfolio is concentrated, with a quality tilt. It focuses on two big transition themes:
    • First, the investment team believes that high emitters (particularly in oil & gas, construction materials, steel, chemicals, and metals & mining) that can evolve successfully to a low-carbon world will be rewarded. Companies in these sectors with clear transition plans can also have significant impact on reducing global emissions.
    • The second bucket in the portfolio comprises the transition ‘enablers’. These are businesses that produce the materials needed for the energy transition. The investment team believes they are likely to benefit from structural growth in demand as the transition accelerates. An electric vehicle, for example, has much higher metals content than a traditional car; renewable energy (think wind turbines) is vastly more metals intensive than a gas-powered energy system. Similarly, in agriculture, the world will need vast amounts of materials (ammonia for fertiliser, for example) to sustainably feed a global population of 10 billion by mid-century. Additionally, as the world seeks to reduce carbon emissions, there will be dramatic changes in agriculture – creating opportunities.
  • Global Environment invests in companies that are positively exposed to decarbonisation (i.e., their growth and returns are leveraged to the energy transition), and seeks to combine impact with financial returns. The portfolio is high-conviction, benchmark-agnostic and concentrated, aiming to provide a diversifier to traditional exposures.
    • The starting point for Global Environment is a proprietary universe of c.1,500 companies that the team believes are positively exposed to decarbonisation. The universe is created by screening for businesses with environmental revenues (i.e., they generate at least 50% of revenues from activities that are directly linked to decarbonisation) and whose products and services save carbon emissions relative to the traditional alternative.
    • From this universe, the Fund seeks select investment opportunities across the primary pathways to a low-carbon future: renewable energy (e.g., solar, wind, clean-power utilities, smart grids and networks); electrification (e.g., of transport and industrial processes, and heating and cooling systems) and resource efficiency (which includes companies contributing to resource efficiency in waste management, the built environment, agriculture, consumer products and factories).
  • The Global Natural Resources Fund and the Global Environment Fund have delivered very different return profiles in recent months, with the former benefiting from the surge in commodity markets and the latter experiencing some near-term headwinds from supply-chain constraints and input-cost inflation. This highlights the funds’ potential to give investors different and complementary performance in the nearer term while the long-term decarbonisation theme plays out.
  • The managers of both strategies see valuations as (selectively) attractive at present. In the Global Natural Resources universe, the traditional energy sector is trading at low price-earnings multiples due to investor aversion to carbon emitters (even those the investment team believes can transition successfully); while in the Global Environment universe, market gyrations since Q4 2021 have created what the team regards as some appealing entry points.

Past performance does not predict future returns; losses may be made. All investments carry the risk of capital loss.

Specific risks
Geographic / Sector: Investments may be primarily concentrated in specific countries, geographical regions and/or industry sectors. This may mean that the resulting value may decrease whilst portfolios more broadly invested might grow. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Commodity-related investment: Commodity prices can be extremely volatile and losses may be made. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems. Concentrated portfolio: The portfolio invests in a relatively small number of individual holdings. This may mean wider fluctuations in value than more broadly invested portfolios. Sustainable Strategies: Sustainable, impact or other sustainability-focused portfolios consider specific factors related to their strategies in assessing and selecting investments. As a result, they will exclude certain industries and companies that do not meet their criteria. This may result in their portfolios being substantially different from broader benchmarks or investment universes, which could in turn result in relative investment performance deviating significantly from the performance of the broader market.

General risks
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Authored by

Tom Nelson
Portfolio Manager
Graeme Baker
Portfolio Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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