Slow energy sector momentum hits BlackRock

The after-effects of the credit crunch combined with a lacklustre UN Climate Change Conference have led the BlackRock New Energy trust to underperform, its managers say.

For the six months to 30 April, the trust's NAV increased by 4.5%, compared to a rise of 16.7% in the MSCI World Developed Markets index. The share price also fell 2.3% over the period.

Robin Batchelor and Poppy Allonby, the managers of the £117m trust, say there are four major reasons why the new energy sector has underperformed compared to broader equity markets.

As well as the lingering effects of the credit crunch and the lack of positive legislation momentum following the UN summit, the managers blame the bureaucracy involved in government stimulus packages and the fall in electricity prices.

"Access to credit in this sector remains slower and harder to obtain than two years ago. This has caused a delay in new projects and a consequent reduction in the growth of equipment orders," they say.

"In those electricity markets without a fixed feed-in tariff for renewable sources, lower spot prices have led to a stand-off between renewable energy developers and local utilities.

"This has resulted in fewer power purchase agreements (PPA) being awarded, with a knock-on impact being the inability to proceed with many planned projects."

Batchelor and Allonby say their holdings in the wind sector have been particularly hit, though some of impact has been offset by its exposure to energy efficiency stocks.

"After a noticeable absence of new orders in the wind sector raised fears over 2010's growth rate, many investors capitulated in January and sold their holdings," they say.

However, Batchelor and Allonby say some of the issues are being resolved, with companies reporting increased access to debt and stimulus money starting to be received.

"While the sector's growth rate has slowed markedly as a result of the global financial crisis, the long-term drivers of the sector remain in place," they say.

"Climate-related legislation continues to spread globally as countries pursue the parallel paths of incentivising cleaner forms of energy production and raising energy efficiency.

"As the four headwinds described above recede in importance, these sector drivers will return to the fore."