Fund of the week ‘The pandemic did not affect our green dividends’

Chris Tanner of JLEN Environmental Assets tells Sam Benstead how renewable energy delivers a Covid-proof income stream

Income investors have had a difficult year as companies axed dividends to shore up their finances. FTSE 100 firms are expected to cut payouts by 25pc this year, but not all income streams have dried up.

The JLEN Environmental Assets investment trust has managed to ride out the storm without chopping its dividend. It currently yields an enticing 5.7pc.

Chris Tanner, the manager of the £640m trust, explains how it generates an income from “environmental assets” and why he believes the portfolio can keep delivering dividends despite economic turmoil.

WHO IS THE FUND FOR? Investors looking to diversify their income sources while also owning something that has a positive impact on the environment.

Our income is generated by a unique set of environmentally friendly assets whose businesses are unaffected by broader economic and stock market trends. They are a great way to achieve a dependable income, paid out via quarterly dividends.

WHAT’S YOUR INVESTMENT STRATEGY? We buy renewable energy infrastructure and businesses, such as solar and wind plants or anaerobic digestion (the breaking down of animal and food waste into gas) and biomass projects. These produce energy that is sold to the network. We also own companies involved in the treatment of water and waste.

We look for companies that use established technologies so there is little risk they will fail. They must make their income from reliable sources, such as government subsidies or fixedprice contracts linked to inflation. We have 32 holdings, all of which are private companies.

HOW DO YOU GENERATE AN INCOME? Our energy assets make money by

Chris Tanner

Shoals Hook Solar Plant – This Pembrokeshire solar farm has almost 50,000 panels and can deliver up to 14.8 megawatts of power to the grid – that is equivalent to the average energy consumption of 4,300 households. We own 100pc of the project and it forms part of a network of four solar farms. Overall, we currently have six solar projects in the fund.

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For onshore wind, 50pc of revenues come from electricity and the rest comes from subsidies. This makes it very reliable. Solar parks have even more of their income from government subsidies, typically around 55pc.

More than 70pc of our income is linked to inflation. If inflation returns, as many predict, our dividends will rise with it.

The biggest risk is from lower renewable energy prices, which can fall as economic activity slows.

Government subsidies can be cut – but this is actually a good thing as it shows that what we own can stand on its own feet as a business.

Most of the subsidies we get now are locked in for a long time, so future government policies do not affect our income.

HAS THE PANDEMIC AFFECTED YOUR FUND? The trust’s share price fell by 20pc in March but has since recovered. Our holdings are not affected by the pandemic as the country still needs gas and electricity. The trust didn’t drop its dividend payments.

WHY IS THE FUND AT A 26PC PREMIUM? Because our assets are private, the fair value is difficult to determine.

This means the share price can diverge significantly from the stated net asset value. We value our assets conservatively, so the premium can be overstated.

Even at the current premium the trust yields 5.7pc, so investors should not worry.

WHAT HAS BEEN YOUR BEST INVESTMENT? Anaerobic digestion plants, where microorganisms break down biodegradable material to produce gas. It is a really exciting area for us.

Vulcan Renewables was one of our first anaerobic digestion investments.

It was also one of the first plants to send gas directly to the national gas network. We have been able to keep investing as the site has expanded production. More than 75pc of its revenues are linked to inflation.

AND YOUR WORST? We haven’t sold any assets since the fund was launched in 2014. A waste management investment did terminate operations early, but it was only a small part of the portfolio and we were able to recover most of our money. We have faced greater than expected technical difficulties with wind and solar assets before, but nothing we have not been able to overcome.

What £1,000 invested in 2014 would be worth now

DO YOU HAVE YOUR OWN MONEY IN THE FUND? I do, and part of my pay is linked to its performance.

WHAT WOULD YOU BE IF NOT A FUND MANAGER? A civil servant. I love the practical side of government.