Why the time is now for investing in this theme and three stocks to get on board
“What we’ve seen as a result of the energy crisis though is that decarbonisation or the energy transition must happen in a socially responsible way.
By that, I mean we must focus on the security of supply. That really has seen a fast tracking of not only renewable investment, but investment into transmission grids as well as the recognition of transition fuel such as gas,” says Sarah Shaw, portfolio manager and CEO/CIO for 4D Infrastructure.
As a result, Shaw has seen increases in the growth profiles for some of the assets she holds in the 4D portfolios. After years of the decarbonisation theme going nowhere, there’s movement and it’s a good time to get in.
In this edition of Expert Insights, Shaw discusses the energy crisis and what it meant for infrastructure investing, the decarbonisation theme, and three of the names she likes in this space.
Edited transcript:
Can you discuss the key drivers behind the energy crisis?
What do you see as the short- and medium-term outlook for the energy sector?
Decarbonisation has been a long-term infrastructure thematic for many, many years, and that's gone nowhere. What we’ve seen as a result of the energy crisis though is that decarbonisation or the energy transition must happen in a socially responsible way.
By that, I mean we must focus on the security of supply. That really has seen a fast-tracking of not only renewable investment, but investment into transmission grids as well as the recognition of transition fuel such as gas. I think what we've come out of the energy crisis with is a greater commitment to decarbonisation, but to do so in a way that we see security supply and social obligations met.
What has the crisis meant for infrastructure and 4D’s portfolio?
We’ve always been investors in decarbonisation. The crisis has actually fast-tracked that for us.
By contrast, the regulated utilities have a regulated model, so they're largely insulated. In saying that, there were some social consequences last year with affordability and passing through power prices. The regulated utilities did their part there as well, as support from government caps to ensure that there was a smoothing of power prices. We clearly saw volume disruptions and many of the gas transportation players capitalised on that and the higher commodity prices to improve volumes.
The overarching outcome of the energy crisis has been an improved growth thematic within infrastructure and in ensuring the security of supply.
How are you positioning for opportunities and risks that you see from this?
We are still exposed to the regulated utilities across Europe because they are capitalising on this opportunity.
We look at that through the integrated, regulated players such as Iberdrola SA (BME: IBE) or Enel S.p.A. (BIT: ENEL) who are really ramping up their growth pipelines.
We're seeing opportunities arise out of this through the transportation names. They must also decarbonize if we're going to see a net zero world, but they also actually can capitalise on the outcome of this in high inflation because they get an explicit pass through.
Again, it just lends to our overweight to those assets within our universe that have that explicit inflation pass-through yet can capitalise on the decarbonisation opportunity.
Can you discuss some of the investments you expect to benefit from this?
We're definitely investing in the regulated utilities that are actually building out the new generation as well as strengthening the grids. We're invested in the gas transportation networks out of the US as that is a transition fuel as we move through this energy crisis. But we continue to invest in the transportation names that are capitalising out of the negative outcome of the energy crisis in terms of inflation. We're capitalising on the whole spectrum.
Some of the names we are invested in are Iberdrola and Enel out of Europe, we’ve got NextEra in the US, we've got the transportation names around the world where there's an explicit inflation hedge.
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4D Infrastructure is a Bennelong Funds Management boutique that invests in listed infrastructure companies across all four corners of the globe. For more insights on global infrastructure, visit 4D’s website.
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