Schroders' Webber plans to boost renewable exposure

Schroders'Simon Webber is planning to increase exposure to renewable stocks believing prices are about to reach rock bottom.

The Global Climate Change fund manager says negative sentiment around the sector has pushed down valuations from their highs. However, he believes there are a number of factors which could lead to a rebound.

"It has been a tough start to the year for the renewable energy sector. Germany is, rightly, slashing its over-generous solar subsidies, which some in the industry had become reliant upon," he says.

"Meanwhile wind energy markets outside of China remain depressed by low power prices and slowly recovering project finance markets."

Webber says this has driven multiples down to 10-15x P/E from the 30-40x of a few years ago.

However, he believes international and national policy in the renewable space will boost prices in the medium term.

"Post Copenhagen, the market has completely written-off the chances of the US passing climate legislation, yet, to us, the chances have actually gone up," he says.

"A carbon cap-and-trade mechanism rarely looked likely to pass Congress and, with Democrats desperate for legislative victories ahead of the November elections, they are now much more likely to drop this mechanism, instead targeting a slimmed-down bill containing a federal renewable energy mandate, which has a much higher chance of passing.

"Higher oil prices, higher power prices, and the beginning of industry consolidation would also all be major catalysts - so it may be a few months off yet, but we sense a major bottom for renewables stocks is not far off."