The charts below show that the average “good” energy share in our random portfolio was up over 100% last year and this performance has continued into January.
Positive electric vehicle news, government policy announcements in Europe, China and the election of Joe Biden in the US have helped drive very positive sentiment. Interest rates remain absurdly low.
This level of performance cannot possibly continue for long but ITK expects that this global portfolio will continue to do well over the next decade.
Back in January 2020
ITK put together a list of renewable energy and lithium and electric vehicle focused equities selected from global markets.
The selection criteria was very unscientific and entirely unsuitable for a formal Exchange Traded Fund [ETF].
For instance, we included Volkswagen even though most of its current business is still focused on internal combustion engines.
The original motivation for the portfolio was that it’s easy to see the damage that climate change has caused in the stock market, massive underperformance of European utilizes about 8-10 years ago and the ongoing pressure on coal and gas stocks in the USA.
Equally the big state owned coal generators in China have been absolutely shocking investments for the most part. But it wasn’t that easy to find the winners.
Or at least they weren’t making the same headlines.
Yet, when I looked into it there were some great stocks to follow, Nextera, Orsted, Solaredge and then along came Tesla. I don’t want to talk about valuation, a topic that requires professional training, lots of experience a willingness to be wrong and good judgement, so let’s just focus on the ultimate scorecard, share market performance.
We published a note detailing how well the portfolio was doing on October 6 in Reneweconomy, click to read here.
And this brief not is a quick performance update. Readers should be well aware that there is no bench market to compare performance against, and of course many equities have done well in this period.
Also there is no account of dividends, currency moves and other factors.
Some stocks such as Infigen and Windlab have dissappeared.
No doubt others have been listed on global markets that just haven’t come to our attention.
The last 30 days has seen median increase of 20%
I can’t stress strongly enough that 20% in 30 days is ridiculous. No portfolio is going to increase in value 20% a month for any extended period of time.
Anything better than 10% per year is more than acceptable considering bond rates at 1%.
In fact, the total market can on average expect to earn say 6% more than the bond rate so about 7% per year over many years.
Not necessarily in any one year where the return may be much lower or higher.
In this portfolio the best performing stock in the past 30 days has been Sunpower where the share price has gone from US$5 to US$50 over the past 12 months.
This stock appears to be positively exposed to the Biden election, at least in the opinion of investors.
You can see a number of Australian traded lithium and rare earths stocks in the list, disclosure my super fund owns Orecobre and Lynas. That includes Orocbre, Galaxy Resources, Pilbara Minerals and Lynas.
Some readers might recall an Energy Insiders podcast we did with Rodney Hooper from South Africa talking about his, and my, very positive outlook for the lithium sector as electric vehicles get going.
Lynas produces rare earths which are used to make the magnets of modern electric motors. Lynas has some of the few deposits in this segment not controlled by China.
The median performance was 118% over the past 12 months
Turning to the 12 month performance the median performance was 118%.
Think about that, you would likely have doubled your money by picking any stock at random from this portfolio.
Neoen, one of the largest renewable developers in Australia and now with a market capitalization of US$5.8 billion saw a 100% share price increase.
Hello AGL, Origin investors.
The Tesla price increase is well known
It’s likely that employees and management in all these companies somehow will benefit from this positive sentiment.
It’s easier to raise money, there will be more jobs, easier to get pay increases etc.
ITK’s advice is two fold:
(1) make the most of it, when things are this good it never lasts, and (2) make sure you survive the inevitable down turn so you can be around for the next cycle of which there will be many.
The trend will be up but it won’t be a straight line.
David Leitch is a regular contributor to Renew Economy. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.