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Meet the manager of Guinness Alternative Energy: 2013’s best performing fund

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One particular clean energy fund delivered returns unsurpassed by not just the sustainable investment space last year, but the entire UK fund world. In the 12 months to the end of December, Guinness Alternative Energy returned 67.62%, reaching highs of over 100% at certain points.

Launched in March 2006, the fund invests in those companies where 50% of their business is in the renewable energy sector. At its peak before the financial crisis of 2008, the fund – which is split between a US mutual fund and a UK global equity fund – was worth $150m. It now manages assets of $42m, but has witnessed remarkable performance in the past year.

But what has driven this and is the future outlook equally bright? Alex Blackburne sat down with fund manager Edward Guinness to find out.

To what do you attribute the Guinness Alternative Energy fund’s impressive performance over the last year or so?

If I look directly at what stocks drove it, one key area for us has been solar. Our wind turbine manufacturing stocks – we’ve owned Vestas, Nordex and Gamesa over the period – have also performed very strongly.

Conceptually, this fund done better than all of the other funds over the last year because it’s the only fund that has stayed pure-play invested in alternative energy. When I look at my peers, their portfolios are invested quite broadly in natural gas companies or companies like GE or Siemens, which have very strong wind turbine manufacturing divisions, but in the context of the overall companies, they are small bits of the business. By staying really focused on alternative energy, as the market has begun to turn a corner, we have been prime beneficiaries of that.

If you look at three or five years, Guinness Alternative Energy has not done as well as it has in the last 12 months. Has performance improved because of changes you’ve made or because of the market more generally?

I would say that as the most pure-play fund, we always were going to be a higher beta (stocks that are volatile, and therefore riskier, but more profitable). When you’re a higher beta, you’re going to underperform in the down years. When you’re underperforming, it’s quite hard to explain to people that when the whole market turns, you’re going to then outperform. I think what the last 12 months have demonstrated is that we are a genuinely higher beta.

When I look back, 2008 to 2012 was a very, very challenging period for the sector, and it’s not completely through it yet. There are still quite significant regulatory headwinds, market headwinds and sentiment headwinds that the sector has to get through. The situation is different from where I was in 2008 in terms of the competitiveness of some of the key alternative energy technologies. Policymakers and the public have not yet recognised how dramatically the price has changed particularly for solar, but also for wind. We feel quite excited about where we now are, but it’s not plain sailing yet.

Are there any plans for future growth?

As it’s a daily trading fund, this is a fund I think can grow a lot. For funds like this that have been through quite a challenging period, it takes time for investors to get their confidence again. The good thing is when they come into this fund, they can see in the track record the risk that they’re taking on. They can also see the upside in a rising market.

In terms of plans to grow it, I think with the companies in the portfolio at the moment, and the opportunity set that I see today, I wouldn’t feel comfortable with more than about $500m in the fund. But the circumstances that are likely to have taken the fund to $500m – if we were to have got there – mean that the universe would probably look quite different. With a sector like this, I wouldn’t want to be pinned down.

Are there any companies you’d pick out as star performers or particular interesting?

Amongst the solar manufacturers, I guess the really strong performers have been the lower cost Chinese manufacturers. We’ve had big wins in Trina Solar and Yingli Solar, which have historically done quite a bit of advertising so people are aware of them.

Companies that people might not have heard of in this space are Jinko Solar, which is the lowest cost manufacturer of polysilicon modules at the moment. Another I’d point to is Sunpower, which has had a very strong run.

How does the Guinness Alternative Energy fund, which invests in clean energy, square with the Guinness Global Energy fund, which invests in fossil fuels?

Our view is that the two are highly complementary and they send a strong message to investors, hopefully, that we are coming at this from an investment perspective because we think this is an area that can make higher returns – more so than because we’re making a moral or ethical call on the investing side.

The strategy itself fits very well into sustainable and responsible investment (SRI) and environmental, social and governance (ESG) portfolios, but it is pure-play. With positive screening, in some ways you don’t have to worry too much about SRI and ESG, because it fits that naturally.

What’s your background?

I read engineering at Cambridge and then left to go to HSBC to become a corporate financier, where I worked on the energy and utilities team. Before coming back here, I then went to New York to work for a hedge fund and did three years of risk arbitrage, which gave me an accelerated grounding in modern fund management approaches.

I’ve found that my engineering background is invaluable – partly because you can understand how solar panels or wind turbines work. Neither are that complicated, but the physics are quite interesting. Actually understanding what is going on is important for understanding what the costs and risks are. But also, when you go around and visit factories and you’re seeing companies, they’re used to seeing investors who don’t really understand what they do. So if you’re able to ask some reasonably intelligent questions, it’s much easier to connect and you get much more out of conversations with management.

Does the high-profile politicking of renewable energy worry you as an investor?

I think that the quality of debate and policy discussion in the energy sector, particularly in the UK, is woeful. There is little honesty and analysis of the issues done, and if we’re not careful, this is going to create huge problems in the UK.

As an energy specialist, I find what Ed Miliband did, saying he would fix things by freezing prices by 2015, horrific – especially considering he was once head of the Department of Energy and Climate Change when Labour had been in power. It was a meaningless statement without much more context. It was low politics.

The Tories have responded far too hastily. The response they’ve got for, which has been to move the costs from energy consumers onto the general taxation bill, is not logical. The areas that they’re looking at cutting most – energy efficiency – are actually the biggest wins with the fastest paybacks.

It definitely is a worry, but luckily, I think that energy is bigger than politics.

What do you see of the future of renewable energy investment broadly and the Guinness Alternative Energy fund specifically?

One of the two things that I’m going to highlight is solar. People are waking up to the fact that solar is cost effective on an unsubsidised basis and they can do solar installations while getting their electricity cheaper than they would otherwise.

The second thing that I only have one investment in at the moment, but I do think is going to change quite dramatically, is electric vehicles. At some point in the next 15 years, electric vehicles will be the majority of vehicles being sold, rather than a tiny minority. That’s because it’s the one technology that has a distribution infrastructure – actually better than petrol vehicles do, because people can charge at home or at their office. If you deal with the cost issue, it then falls into the executive car mass.

Further reading:

A simple chart that proves sustainable investment pays off

Sustainability: a real growth opportunity for investors

Research links sustainability initiatives to investment stability

63% of UK investors want to be offered sustainable investment options

The Guide to Sustainable Funds 2013

Economy

Report: Green, Ethical and Socially Responsible Finance

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“The level of influence that ethical considerations have over consumer selection of financial services products and services is minimal, however, this is beginning to change. Younger consumers are more willing to pay extra for products provided by socially responsible companies.” Jessica Morley, Mintel’s Financial Services Analyst.

Consumer awareness of the impact consumerism has on society and the planet is increasing. In addition, the link between doing good and feeling good has never been clearer. Just 19% of people claim to not participate in any socially responsible activities.

As a result, the level of attention that people pay to the green and ethical claims made by products and providers is also increasing, meaning that such considerations play a greater role in the purchasing decision making process.

However, this is less true in the context of financial services, where people are much more concerned about the performance of a product rather than green and ethical factors. This is not to say, however, that they are not interested in the behaviour of financial service providers or in gaining more information about how firms behave responsibly.

This report focuses on why these consumer attitudes towards financial services providers exist and how they are changing. This includes examination of the wider economy and the current structure of the financial services sector.

Mintel’s exclusive consumer research looks at consumer participation in socially responsible activities, trust in the behaviour of financial services companies and attitudes towards green, ethical and socially responsible financial services products and providers. The report also considers consumer attitudes towards the social responsibilities of financial services firms and the green, ethical and socially responsible nature of new entrants.

There are some elements missing from this report, such as conducting socially responsible finance with OTC trading. We will cover these other topics in more detail in the future. You can research about Ameritrade if you want to know more ..

By this report today: call: 0203 416 4502 | email: iainooson[at]mintel.com

Report contents:

OVERVIEW
What you need to know
Report definition
EXECUTIVE SUMMARY
The market
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
The consumer
For financial products, performance is more important than principle
Competition from technology companies
Financial services firms perceived to be some of the least socially responsible
Repaying the social debt
Consumer trust is built on evidence
What we think
ISSUES AND INSIGHTS
Creating a more inclusive economy
The facts
The implications
Payments innovation helps fundraising go digital
The facts
The implications
The social debt of the financial crisis
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
PUTTING FINANCIAL SERVICES IN AN ETHICAL CONTEXT
An ethical economy
An ethical financial sector
Ethical financial services providers
GREEN, ETHICAL AND SOCIALLY RESPONSIBLE ISSUES IN FINANCIAL SERVICES
The role of investing
Divestment
The change potential of pensions
The role of trust
Greater transparency informs decisions
Learning from past mistakes
The role of innovation
Payments innovation: Improving financial inclusion
Competition from new entrants
The power of new money
The role of the consumer
Consumers empowered to make a change
Aligning products with self
THE CONSUMER – WHAT YOU NEED TO KNOW
For financial products, performance is more important than ethics
Financial services firms perceived to be some of the least socially responsible
Competition from technology companies
Repaying the social debt
Consumer trust is built on evidence
Overall trust levels are high
THE ETHICAL CONSUMER – SOCIALLY RESPONSIBLE ACTIVITIES
Payments innovation can boost charitable donations
Consumer engagement in socially responsible activities is high
Healthier finances make it easier to go green
SOCIALLY RESPONSIBLE COMPANIES
37% unable to identify socially responsible companies
Building societies seen to be more responsible than banks….
….whilst short-term loan companies are at the bottom of the pile
CONSUMER TRUST IN THE BEHAVIOUR OF FINANCIAL SERVICES COMPANIES
Overall trust levels are high
Tax avoidance remains a major concern
The divestment movement
Nationwide significantly more trusted
Trust levels remain high
CONSUMER ATTITUDES TOWARDS GREEN AND ETHICAL FINANCIAL PRODUCTS
For financial products, performance is more important than principle
Socially conscious consumers are more concerned
CONSUMER ATTITUDES TOWARDS TRANSPARENCY
Strategy reports provide little insight for consumers
Lack of clarity regarding corporate culture causes concern
Consumers want more information
THE ROLE OF FINANCIAL SERVICES FIRMS IN SOCIETY
The social debt of the financial crisis
THE SOCIAL RESPONSIBILITIES OF FINANCIAL SERVICES FIRMS
For consumers, financial services firms play larger economic role
Promoting financial responsibility
CHALLENGER COMPANIES AND SOCIAL RESPONSIBILITY
Consumer trust is built on evidence
The alternative opportunity
The target customer

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Economy

A Good Look At How Homes Will Become More Energy Efficient Soon

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energy efficient homes

Everyone always talks about ways they can save energy at home, but the tactics are old school. They’re only tweaking the way they do things at the moment. Sealing holes in your home isn’t exactly the next scientific breakthrough we’ve been waiting for.

There is some good news because technology is progressing quickly. Some tactics might not be brand new, but they’re becoming more popular. Here are a few things you should expect to see in homes all around the country within a few years.

1. The Rise Of Smart Windows

When you look at a window right now it’s just a pane of glass. In the future they’ll be controlled by microprocessors and sensors. They’ll change depending on the specific weather conditions directly outside.

If the sun disappears the shade will automatically adjust to let in more light. The exact opposite will happen when it’s sunny. These energy efficient windows will save everyone a huge amount of money.

2. A Better Way To Cool Roofs

If you wanted to cool a roof down today you would coat it with a material full of specialized pigments. This would allow roofs to deflect the sun and they’d absorb less heat in the process too.

Soon we’ll see the same thing being done, but it will be four times more effective. Roofs will never get too hot again. Anyone with a large roof is going to see a sharp decrease in their energy bills.

3. Low-E Windows Taking Over

It’s a mystery why these aren’t already extremely popular, but things are starting to change. Read low-E window replacement reviews and you’ll see everyone loves them because they’re extremely effective.

They’ll keep heat outside in summer or inside in winter. People don’t even have to buy new windows to enjoy the technology. All they’ll need is a low-E film to place over their current ones.

4. Magnets Will Cool Fridges

Refrigerators haven’t changed much in a very long time. They’re still using a vapor compression process that wastes energy while harming the environment. It won’t be long until they’ll be cooled using magnets instead.

The magnetocaloric effect is going to revolutionize cold food storage. The fluid these fridges are going to use will be water-based, which means the environment can rest easy and energy bills will drop.

5. Improving Our Current LEDs

Everyone who spent a lot of money on energy must have been very happy when LEDs became mainstream. Incandescent light bulbs belong in museums today because the new tech cut costs by up to 85 percent.

That doesn’t mean someone isn’t always trying to improve on an already great invention. The amount of lumens LEDs produce per watt isn’t great, but we’ve already found a way to increase it by 25 percent.

Maybe Homes Will Look Different Too

Do you think we’ll come up with new styles of homes that will take off? Surely it’s not out of the question. Everything inside homes seems to be changing for the better with each passing year. It’s going to continue doing so thanks to amazing inventors.

ShutterStock – Stock photo ID: 613912244

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