(Oslo, 9 October 2012) With newsflow being less than optimistic so far this year, shares in the renewable energy sector have outperformed global equity markets in August as well as September for the first time by 3.9 and 0.6 percentage points respectively. “Some companies have built up a significant undervaluation in relation to their particular sector and the total market in question. The strategically minded investors is now exploiting this entry opportunity”, explains Jon Sigurdsen, lead fund manager for the DNB Renewable Energy equity fund and the long/short DNB ECO Absolute Return fund managed in the same global universe. He says overcapacity in the wind and solar power industry has led to a decline in sales and profits in recent months, as well as a consolidation in the market for renewable energy companies. “We hope investors will now revert to a more long-term approach and take advantage of the opportunities presented in some sub-sectors by strong global players.”
Network structure is stumbling block
Looking at the next six months, Sigurdsen recommends a theme-driven approach to investments. He identifies grid expansion as having particular potential over the coming years. “Almost everywhere in the world, the lack of or poor standard of power supply networks is an obstacle to the implementation and consequently success of renewable energy expansion. This applies in particular to the construction of offshore and onshore wind farms. Even the highly developed German economy is no exception in this respect”, Sigurdsen points out. According to research by DNB Asset Management, the infrastructure sector therefore offers investors good opportunities, particularly in the energy transmission and grid technology sub-sectors. Expansion of Germany’s network structure is to be stepped up through an EUR 100 billion credit financing programme provided by the federal government via state-owned development bank KfW. “Companies that have specialized in the relevant technology, such as Italian cable manufacturer Prysmian, will be able to reap the benefits of this investment boom”, Sigurdsen believes.
Cost pressures are driving energy-saving technologies
Prospects for the transportation efficiency sector are equally good, according to DNB. Persistently high oil and gas prices, as well as ever more stringent emission standards, make the use of energy-saving technologies increasingly profitable. Thus US President Barack Obama recently approved a program for more efficient use of fuel, the aim being to reduce CO2 emissions significantly and bring down fuel costs by USD 10 billion a year by the year 2025. In the automotive industry, DNB considers that the niche suppliers will be more or less able to carve up the business between them. Thus Sigurdsen has high hopes for Valeo, a French automotive supplier with global operations but whose innovative strengths have not yet been fully appreciated by investors. In his opinion; “Valeo shares are currently valued in the light of developments in the French automotive industry. As Renault and Peugeot in particular are beset with problems, the market is skeptical about Valeo too”, says Sigurdsen. “But wrongly so, as the company has focused successfully on the key areas of energy efficiency and emission reductions, and has come up with some extremely innovative solutions. For example, it produces energy management solutions for drive systems and has recently rolled out innovations such as new LED lighting systems and air-conditioning modules for utility vehicles.”
The DNB “Renewable Energy” (ISIN: LU0302296149) and “ECO Absolute Return” (ISIN: LU0547714286) funds primarily invest in companies that specialize in the production, storage and transportation of renewal energies. The latter was voted “Renewal Energy Fund of the Year 2011” by ECOreporter.de. Since inception, the fund managers have generated a return of nearly 14 percentage points p.a. with DNB ECO Absolute Return (as at 27.09.2012).
» Fact Sheet / Fund Page - DNB Renewable Energy (LU0302296149)
» Fact Sheet / Fund Page - DNB ECO Absolute Return (LU0547714286)
