At last, green income that is sustainable
AS ITS name implies, investment trust JLEN Environmental Assets invests in eco-friendly businesses. But it does not buy shares in firms leading the way in protecting the environment from man’s destruction, as many ‘green’ funds do. Instead, it invests in the infrastructure that generates renewable energy, treats water and waste, or improves energy efficiency.
The result is a near £600million portfolio in 30 projects with an environmental bent. Most are in the UK – big wind or solar farms for example – and produce a steady stream of revenue from the energy generated. For the trust’s shareholders the result is a growing income paid quarterly of more than 5 per cent a year. This is attractive compared with dividends from the UK stock market – and of course interest on high street savings accounts.
Although the opportunity for capital returns is limited, JLEN’s investment record is notable. Over the past three years, it has produced a total return (capital gain plus income) for shareholders in excess of the FTSE All-Share Index – 39 per cent compared to 24 per cent.
Since July, the trust has been managed by Foresight Group, a leading infrastructure and private equity investment manager. With the Election out of the way, joint manager Chris Holmes is confident that the trust can continue to thrive, investing in key renewable energy projects and keeping shareholders sweet with growing dividend payments.
Holmes says: ‘Under the last Conservative Government, the UK was the first major world economy to pass a net-zero emissions law. This focus on reducing emissions, and the infrastructure to help us deliver that, is positive for JLEN. So we hope that the new Government will continue to work in this area to give investors the confidence to support this vital transition.’
The managers tend to buy fully operational businesses and prefer to own them outright. Recent acquisitions include an anaerobic digestion plant at Methwold in Norfolk that produces biomethane for the National Grid – and Yorkshire Hydropower, which has turbines on the Calder and Don rivers.
Holmes says there are risks involved in the assets they buy. He says: ‘Lower energy prices mean less revenue, which could compromise the income we pay shareholders. We could end up overpaying for an asset because our forecasts on the revenue generated are too optimistic. Sometimes the assets we buy go wrong. A wind turbine may break down and take a while to fix. That dents our revenue.’
But Holmes believes the trust is gaining traction among many wealth managers and private investors due to its environmental thrust. Regular factsheets offered by Foresight to shareholders stress the trust’s environmental benefits rather than investment performance. In the last financial year, its portfolio helped divert 415,000 tons of waste from landfill while producing 160,000 tons of organic fertiliser.
While the portfolio’s variety of illiquid assets may scare off some investors, JLEN is set up as an investment trust, meaning investors can always sell shares as the trust is listed on the London Stock Exchange. As with commercial property trusts, which invest in office blocks and shops, the managers never have to dispose of assets if investors rush for the exit door, though the trust’s share price will fall.
This contrasts with property unit trusts where heavy investor withdrawals can result in the managers having to suspend the fund while assets are sold. Stock Exchange codes: GG00BJL5FH87, BJL5FH8