Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Simon Webber, manager of Schroders Global Climate Change Fund.
Policy-makers are now taking steps to tackle climate change. But getting anywhere near the 80% cut in greenhouse gas emissions by 2050 that world leaders are targeting will require a major transformation. Investors are only now waking up to this; many equity prices do not yet reflect the huge potential for companies involved in helping the world either mitigate the impact of climate change or adapt to those changes that are now inevitable.
Britain’s Chancellor, Alistair Darling, recently announced several moves aimed at reducing emissions, including a subsidy for plug-in electric cars. Similar measures have been put in place in the US, Japan and China. But it’s not so much the car-makers that should interest investors. We like specialist battery manufacturers, such as BYD (HK:1211). This Chinese firm supplies batteries to several big car-makers and makes the best-selling small car in China. It’s already selling a plug-in electric hybrid vehicle – the F3DM hybrid. Demand for electric and hybrid vehicles should only increase in coming years.
Governments are also supporting alternative and renewable energy sources because these help reduce emissions as well as a country’s dependency on oil. We like Gamesa (Madrid:GAM), which makes wind turbines. Wind power is gaining huge support in America and, as illustrated in the recent Budget, in Britain. Share prices in this industry have been weighed down over the past six months by the impact of frozen credit markets. Companies have had to postpone large projects due to a lack of financing, but credit markets are now easing, making the growth outlook very promising.
Nuclear power is a source of ‘clean’ energy that’s going through a renaissance after decades of underinvestment. Several major economies have increased their support for new facilities, and this has been reflected in many countries’ stimulus plans. China is already seeking strategic control of more uranium assets ahead of several new power stations being built over the next few years. One of the best ways to play this is through uranium producers, such as Energy Resources of Australia (ASX:ERA).
Companies are also looking to cut their own emissions, especially if they can make cost savings too. Many are eliminating unnecessary travel by conducting meetings using video-conferencing technology. Tandberg (Oslo:TAA) is a leader in this field, and has proved resilient in the economic downturn.
Climate change is creating opportunities in a number of other areas too. In agriculture, increasingly frequent droughts and large-scale flooding are leading to higher agricultural prices and a need for productivity gains, which should drive a long-term trend in spending on equipment. We like AGCO (US:AG), a leading machinery manufacturer.
So far, we’ve identified over 700 firms globally in which climate change has a significant positive impact on the investment case. Some will not be obvious to investors – Munich Re (XETRA:MUV2) is a case in point. It has developed excellent climate catastrophe risk modelling, which we think will become critical for insurers as weather-related phenomena increase in regularity (and possibly severity).
The stocks Simon Webber likes
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|Energy Res. Australia||AU$24.95||AU$9.35||AU$20.90|