The fund, which gets a five crown rating from FE, has been in the top quartile over one, three and five-year periods.
Pure companies
Diana joined Pictet in 2009 and has been covering clean tech since 2007. Co-manager Xavier Chollet joined the fund in 2011, but has also been in the clean tech domain since 2007.
The investment strategy is one-third quantitative analysis and the rest active management, Diana said.
He uses an unconstrained benchmark approach and looks for secular growth at a reasonable price. The investment universe is about 200 stocks, which are filtered first by using quantitative methods that look at, among other things, the “purity” of the clean tech business.
“Investor purity”, Diana believes, is a differentiator for the fund. It means only companies that derive at least 33% of revenues from the clean energy theme are investible.
“We are vigorous in determining which stocks should be in the universe as opposed to stock that has 10% exposure to clean energy.”
The team also excludes fossil fuel producers, which are sometimes included in other clean tech funds.
“With thematic investing there is no benchmark so it’s important to keep focus on the initial belief.”
YieldCos
The fund’s current positioning is 65% in energy efficiency companies, 20% in renewables and the remainder in natural gas infrastructure. In the last few months, Diana has reduced natural gas infrastructure to fund new positons in renewables and energy efficiency.
Energy efficiency investments are largely in transportation, a bet on the vehicle efficiency standards that China, the US and Japan have set to reduce carbon emissions.
“A strong trend is automakers using new technology to make engines smaller and reduce the weight of cars while integrating more electronics.”
The fund is also invested in clean tech YieldCos, which are public companies formed by the parent company to hold operating assets. YieldCos generate predictable cashflow and pay dividends.
They are a byproduct of the low interest rate environment and are mostly in the US.
“YieldCos give a steady stream of cash flow but also give growth because the parent company continues to drop operating assets into it.”
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Pictet Clean Energy Fund
Source: FE, to 1 July
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China’s cleanup
China is the world’s biggest investor in renewable energy, putting a record-level $89 billion in renewable energy projects in 2014, 31% higher than the previous year, according to a report from the US agency EIA.
The sizeable investments are expected to continue to fulfill environmental goals in the most recent five-year plan.
“China’s environmental cleanup policy is real,” Diana said. “Awareness of environmental issues are at a higher level compared to a few years ago and laws have become stricter.”
