Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The Wellington Climate Market Neutral Fund seeks absolute returns, investing long and short in companies globally, based on the assessment of relative-value opportunities between climate-advantaged and climate-disadvantaged companies.
We take long positions in companies with a strong or improving position on climate mitigation (that is, addressing the causes and minimising the possible impacts of climate change) or climate adaptation (aiming to reduce the negative effects of climate change or helping communities adapt to the impact of climate change). At the same time, we take short positions in climate-disadvantaged companies — those with a relatively weak or weakening position on climate mitigation or adaption.
The Fund doesn't simply go long clean technology and short traditional energy. Rather, we invest in a range of climate-oriented themes, such as energy transition, property risk and sustainable transport, as well as clean technology. Our investment process seeks to identify a broad set of climate-advantaged and climate-disadvantaged companies, to diversify exposure among individual themes and among the stocks within each theme. This may help protect capital during periods of market rotation and volatility, given the strategy's historically low correlation with risk assets.
Our sustainable investment research team and global industry analysts provide sector and valuation expertise on companies across the climate continuum, which complements Fund Manager Alan Hsu's idea generation for long/short investing.
This is all delivered in a daily dealing UCITS Fund.
How are you positioning your portfolio for the rest of the year and looking ahead to 2022?
We believe climate investing is about more than just extreme weather; it also includes the impact of regulations, consumer preferences, technology, clean energy, insurance, housing, demographics and data, which permeate sectors globally. Climate change and its consequences are driving the need for mitigation and adaptation efforts, which is fuelling the creation of disruptive technologies across sectors. This transition to a greener future will require an enormous amount of capital, but it will not be evenly distributed, as the winners of climate change will take share at the expense of climate change losers.
Following periods of volatility and a rally in traditional energy stocks year to date, we maintain our conservative posture in the form of low gross exposure, focused on capital preservation. That said, we are starting to lean into themes that we believe are becoming increasingly attractive, offering more attractive risk/reward opportunities. Specifically, we believe our sustainable transport, enabling technology and property risk themes are the most attractive over the next few months, owing to fundamental supply/demand imbalances that we believe will take years to correct.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We believe the market continues to understate the bullishness about electric vehicles (EVs), which underpins our sustainable transport theme. Importantly, we will need the infrastructure and charging capability to support the 1.8 billion EVs that are expected to be on the road by 2030 (based on BNEF estimates). As nearly every car maker's EV product line-up proliferates, as costs continue to decrease and as climate stays top of mind politically, we think the shift in consumer preferences for all things electric will be decisive. As a result, we believe EVs will become the norm sooner than the market appreciates. This has profound implications for the auto industry, all the basic materials that go into producing cars and the energy sector.
We expect that COVID will continue to reshape commercial real estate, which has many implications for both climate resilience and energy efficiency investments as expressed within our property risk theme. Recent data has shown that office occupancy remains well below 20% of pre-COVID levels. While global herd immunity is not yet realised, it seems reasonable to say that meaningfully lower commercial occupancy levels (relative to pre-COVID times) are the new normal. As a result, we continue to believe that investments directed at home energy efficiency should continue to grow.
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