Does it pay to invest like a ... Saint or a ... sinner?
Amid the green rush, oil stocks can be snapped up cheaply. So...
WITH Cop26 underway, the environment is firmly at the front of the world’s news agenda. But as various world leaders stress the importance of building a low-carbon world, not all investors are convinced.
While some have ploughed money into green technologies — and vowed to shun big polluters — others see out-of-fashion sin stocks, including oil companies, as an opportunity.
Some of the world’s biggest investment companies — including Fidelity, BlackRock and Vanguard — have pledged to pull money from companies not committed to becoming carbon neutral.
It comes as Chancellor Rishi Sunak will today announce plans to force listed companies to publish their plans on how they’ll become carbon neutral.
Yet at the same time, several hedge funds and private investors — including British billionaire Crispin Odey — have been buying up oil companies left behind by big firms.
And thanks to a surging oil price — now up to $85 (£62) a barrel, after seven consecutive weekly gains — their bets appear to be paying off.
So should you be an environmental saint or sinner when it comes to investing?
If you’re keen to follow Boris and Biden in going green, you won’t be lost for opportunities.
More than $35trillion of global investment capital is now said to be in funds designated as ESG (environmental, social and governance) friendly. Meanwhile, shares in green technologies — including renewable energy and electric vehicles — have been rocketing.
Electric-car maker Tesla continues to push to record highs, hitting $1trillion last week. And U.S. hydrogen battery developer Plug Power is up 1,150 pc since the beginning of January 2020.
But a few months ago, the picture began to change. A sudden rise in the oil price, coupled with disruption to global energy markets, saw a rapid resurgence in old carbon stocks.
In the U.S., Texas-based oil driller Diamondback is up 133 pc this year. Shares in Missouribased coal miner Peabody have soared a whopping 384pc. It’s worth noting that this comes after a longer-term decline in their price: with Peabody still worth 30 pc of its 2018 price.
ON THE FTSE, a similar (albeit less dramatic) rise has occurred, with oil giants Shell and BP now up 28 pc and 37 pc since January. Even better, both are expected to pay more than 4 pc in dividends.
Despite Cop26 grabbing the headlines, the oil industry will not be riding off into the sunset any time soon,’ says Garry White from investment platform Charles Stanley.
‘They may be less fashionable with ESG concerns, but ultimately it’s the oil price that determines their valuation.’
While U.S. oil stocks have surged, many were on the verge of bankruptcy this time last year: and still have big debts.
On the FTSE, you don’t have to look far for companies that have struggled: with the beleaguered
Wood Group down 37 pc this year (and 73 pc in five years).
Its struggles reflect the market’s general consensus that, while it may take years to materialise, a transition from oil is under way. Shell and BP are both keen to be part of that shift: publishing plans to transition to lowcarbon companies.
Fund manager William Lough, who manages River & Mercantile UK Dynamic Equity Fund, is a believer in Shell’s green transition plan — and that it is undervalued by environmentally-conscious investors.
‘We think they have a thorough and credible strategy to become more sustainable,’ he says.
The uncertainty of the energy market means many investors — saints or sinners — may prefer to buy-in through managed funds. For investors persuaded by the green case, Impax Environmental Markets invests directly in renewable energy. Its five year performance has turned £10,000 into £24,600. Baillie Gifford’s
Positive Change Fund avoids carbonintensive companies, rather than focusing on renewables. Over three years, it has turned £10,000 into £25,900. The commitment of big investors to net zero means fossil-focused funds are reducing. Schroder’s ISF Global Energy is one such fund. But struggling energy markets have dragged its long-term performance, with a £10,000 investment five years ago worth just £7,611. Like oil stocks, it remains a risky bet: but one that could pay off.