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Thematic investing

60 seconds with our Clean Energy manager

April 2016

Luciano Diana, Head of Environmental Strategies

Luciano Diana provides insight into the Clean Energy portfolio he manages and shares his views on the market.

Taking a step back

A recent surprise for me was the five-year extension of US tax credits for wind and solar, which took place mid-December. The tax credits were supposed to expire at the end of 2016. My outlook for US renewable stocks was already positive, but it became even more so because the extension increases visibility for renewable companies and further boosts their growth prospects. The compromise between Democrats and Republicans was unexpected and became possible because each party got what they bargained for. Democrats got renewable tax credits, Republicans got the ban on petrol exports lifted.

Hit & miss

Companies in our building efficiency segment fared particularly well in the last few months. This was one of the biggest successes in the fund. The market underestimated demand for green building products, such as LED lighting, insulation materials and efficient appliances. Growth can be significant as these products are still under-represented versus traditional building materials and appliances.

A disappointment for me was the continued negative sentiment on transport efficiency stocks. My strong belief is that component manufacturers for the automotive sector will benefit greatly from stringent environmental and fuel efficiency regulations. These regulations are not weakened by the current low oil price. However, the average investor seems to believe that the fundamentals for those companies are permanently impaired.
We think this is overly pessimistic.

On my radar

Energy storage is a key technology on my radar for the next few years. It is a key enabler of the energy transition as it can literally revolutionize both the electric utilities and the transportation sectors.

In particular, storage will allow to increase adoption of renewables in electricity grids and promote electric automobiles. Lithium-ion technology is currently the most promising technology and Tesla seems to have a lead on all other competitors. I am closely watching their "Gigafactory" which should start production in 2017, drastically cutting production costs.

On a more personal note

© Pictet Asset Management 2016