M&G case study: investing in the road to zero carbon

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For Investment Professionals only

Among the core holdings in the M&G Global Listed Infrastructure Fund are NextEra Energy and Enel, two companies at the vanguard of renewable energy deployments. The critical nature of the underlying assets epitomises the attractions of infrastructure as an asset class, while the structural growth in renewables provides a powerful long-term tailwind for companies addressing climate change.

NextEra Energy is a US utility company which ranks as the world’s largest producer of wind and solar energy. With a broad geographic footprint across the US, NextEra Energy is the nation’s leading provider of clean energy including natural gas, a key transition fuel for the reduction of carbon emissions. It is also a market leader in energy storage, with more capacity than any other company in the US, to improve the efficiency of energy use.

Sustainability is at the core of the company’s strategy to benefit a broad range of stakeholders: the environment by way of its focus on clean sources of energy, customers by way of a reliable service and lower costs, and shareholders by way of consistently rising cashflows and dividends. We invested in NextEra Energy at the fund’s launch in October 2017 and we have been duly rewarded with higher dividends and a higher share price.

Past performance is not a guide to future performance.

Enel, the Italian utility, shares the same philosophy of sustainable growth. Enel is a domestic champion but also a global company with a significant presence in the long-term growth markets of South America. Enel’s strategy combines significant and growing investment in renewables with an acceleration in decarbonisation by way of phasing out coal. The company is planning to increase renewables capacity by more than 30% over the next three years, with wind, solar and hydroelectric power expected to account for 60% of total capacity by the end of 2022.

Enabling the development of electric mobility is another key initiative, with Enel embarking upon the single largest deployment of charging stations in Europe. The company is proposing to increase the number of charging stations across the group by a multiple of nine over the next three years, from 82,000 last year to 736,000 in 2022.

Enel also has a clear commitment to returning cash to shareholders. The company’s guidance for dividend growth over the next three years is at least 8% per annum.

We invested in Enel in June 2018 when concerns about the political and fiscal situation in Italy led to indiscriminate selling in the Italian stock market, particularly in the more interest-rate sensitive sectors. Enel’s business is not confined to the domestic market and we saw the sentiment-driven weakness as a buying opportunity. The stock was purchased on a historic yield of more than 5% with robust and reliable growth in the dividend stream.

The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.

The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment.

The fund holds a small number of investments, and therefore a fall in the value of a single investment may have a greater impact than if it held a larger number of investments.

Investing in emerging markets involves a greater risk of loss due to greater political, tax, economic, foreign exchange, liquidity and regulatory risks, among other factors. There may be difficulties in buying, selling, safekeeping or valuing investments in such countries.

Further details of the risks that apply to the fund can be found in the fund’s Key Investor Information Document and Prospectus.

The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash.

Looking under the bonnet

As the fund’s management team celebrates three years of performance, over the next few weeks, our team here at IFA Magazine will be lifting the lid on the fund.

We’ll be looking at different aspects including updates on how it operates, what the key differences are compared to other ESG funds and why the fund’s managers are optimistic that it is well placed to capitalise on opportunities that the market presents for growth – and growth in income – in coming years.

A special IFA Magazine supplement will be available in November, providing advisers with a useful summary to assist the investment research process.

Click here for more information about the M&G Global Listed Infrastructure Fund

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