Dynamic Energy Evolution Fund – available in mutual fund and ETF form – digs deep into theme to find the winners 10 years from now
The “new normal” has been touted as the return of active management. With the economic recovery uneven and uncertainty regarding COVID variants lingering, this period represents a chance for managers to outsmart passive index-trackers. Nowhere is this more important than in one of the primary growth areas that’s emerged in recent months and years – renewable energy.
The Dynamic Energy Evolution Fund is available in both a mutual fund and an ETF package, with its managers priding themselves on not only holding quality companies at a reasonable price but being able to identify the sector winners 10 years from now. This requires not only deep experience of the energy industry but also the ability to separate the wheat from the chaff.
Jennifer Stevenson, VP & Portfolio Manager, told WP that climate change mitigation is now top of mind for everyone, whether it’s the food you buy, the clothes you wear or the car you drive. She said: “This isn’t a trend. Meeting the net zero target, that is the new normal. From an advisor standpoint, clients deserve to be able to participate in this new focus area of everything from personal to corporate activity.”
The target she refers to is, of course, the Paris Agreement’s mission to reach carbon net zero by 2050. It does not take a genius to realise that this requires renewable energy. However, in an increasingly crowded marketplace, expertise is required to ensure investors are exposed to fundamentally good companies and not flawed ones.
Stevenson said the fund captures this net-zero opportunity with quality control, as well as the ability to say 'no' to a lot of the sub-standard companies jumping on the renewable or green bandwagon.
She added: “When you're in this business, and you look at this every day for living, we shake our heads a lot and worry about how advisors handle that barrage of information, opportunities and pitfalls. You can do that with a professional active manager that has that niche product.”
Stevenson’s colleague, VP and portfolio manager, Frank Latshaw, also highlighted the fund’s ESG profile, to go along with its investment prospects, as being attractive to advisors.
He views the long-term growth opportunity as not just substantial but one that’s still in its early stages. For example, the world is generating somewhere between 10% and 15% of its electricity today from renewable sources, but is targeting a minimum of 30% in the next 10 years. Other areas are also in the early adoption stage, like hydrogen fuel cells, rooftop solar or offshore wind.
Growth rates of 50% in some of these areas are achievable, while in others, like hydrogen fuel cells, it could be greater as it’s at an even earlier stage. But, of course, not every player will be a winner and that’s where Dynamic feels it has an edge, with portfolio managers that have a proven ability to screen for companies that have good management teams, financials, and sustainable balance sheets that generate free cash flow. Critically, these firms must be able to demonstrate their strength through at least two iterations of growth without hurting themselves.
Latshaw said: “We're definitely not interested in the more speculative areas of this theme or new entrants that haven't proven either their business acumen or their technology and service offerings. We’re pre-programmed to find the companies that are already best in class.
“It’s going to be a bit of a gold rush, initially, and there's going to be a lot of people interested in capitalizing on the great prospects that we see, and not all of them are going to survive. But through our natural investing selection process, focus on quality, and our experience in the industry throughout the course of our careers, I believe we will be able to define the companies that will be the winners 10 years from now.”
The products are focused on pure play renewables, so hybrid models typical of the big energy companies are not included. For example, rather than own a bottling company using cleaner operating processes, it will own the company that powers its facilities with clean power.
Stevenson explained: “Over the long term, there's a lot of differentiation by focusing on that strategy, because every large, good corporate citizen out there in the world is looking to get more environmentally friendly. Owning automakers today that are ahead of others on that front [like Tesla, for example] might make you capable of claiming an environmentally friendly offering, but five years from now, they're all going to be doing it. The key message that we like to stress with people is our quality approach plus our niche focus.”