Energy Transition - Investing in Industrial Change

Our next speaker is Gaudi Schneider from MaxAlfa.

Gaudi is MaxAlfa's chief scientist, where he designs dramatic strategies.

The MaxAlfa energy transition strategy aims to provide exposure to global megatrend of the energy transition to a low carbon economy with the goal to reach net zero in 2050.

The investment objective is to provide capital appreciation.

The strategy invest in assets whose valuation is strongly linked to the progress of the energy transition while managing allocations across asset classes to ensure risks are balanced.

Gaudi is going to talk to us about energy transition, investing in industrial change.

Over to you, Gaudi.

Thank you and good afternoon.

My name is Gadi Schneider, and I'm Max Helfass, Chief Scientist.

Today, I'll tell you about the mega trend of the energy transition and how we invest in it.

I hope you can see my slide.

Maybe to provide some context right from the start, we are not an impact investor, but we have a pure investment strategy approach to this theme.

I'll start with what we understand of the global energy transition and why we think it's important for investors to participate in this trend.

And finally, I'll explain how we at Maxalpa invest and what makes us different.

The transition

The low carbon economy is a global mega trend.

Accordingly, we have to think of our investments in a global context, not on a regional or national level.

We immediately think the switch from fossil to renewables will largely affect power generation and transport with electric vehicles appearing on our roads.

But as we just heard in the previous presentation, the ripple effects flow through all sectors of the economy.

Think of investments into the supply chain of energy generation and transportation or the price pressure on commodities.

We often read about lithium, but there are so many others.

and also inflationary pressure on the whole economy, just as we are experiencing now.

The urgency of the climate crisis forces governments to incentivize the transition through fiscal stimulus, new policies, and increasingly carbon pricing.

And remember, this is not only happening in Australia, but all over the globe.

In other words, the energy transition is a structural change to the macroeconomy.

It's a monumental undertaking that will be dominating economic activity for decades.

Its impact on our daily lives and our wealth cannot be underestimated.

So why should investors take note?

Periods of change always offer unique and profitable opportunities for investors.

What is so attractive about this mega trend from an investment perspective is that its growth is secular.

That means it is independent from cyclical up and downs.

It is unstoppable.

And that it's long-term.

And whatever the success of the move to net zero in terms of time scale, we achieve that goal sooner or later.

This mega trend is bound to persist globally for the next decade and even decades probably.

This is not an issue investment.

It's a global trend affecting all sectors.

And that's why we believe this mega trend offers investors great risk adjusted returns.

And while the time is right to invest now, we are selective in our investments and focus on assets that have the most room to grow.

When approaching the transition from an investment perspective, we wanted to create a true multi-asset solution where we diversify away from asset class specific risk.

While our portfolio is, oh, sorry, wrong button.

Here we go, sorry for that.

While our portfolio is diverse in terms of asset classes, it's very focused within the asset class.

All the assets we have are supported by this mega trend.

So that's why it's holistic.

And our strategies are rules-based that removes the human bias and allows for consistent performance.

Our investment rules, for example, stock selection and asset weights are based on empirical and quantitative research.

And finally, we only use liquid and exchange traded instruments for our implementation.

We reap the greatest diversification benefits as investors from diversification across asset classes and not from within the asset class.

And that's why we are very selective.

Let's have a closer look.

Equities are a long-term growth drivers of the mega trend.

We focus on profitable leaders, not only among utilities, but the whole supply chain.

Commodities, metals are required to build a whole new infrastructure and a lot of them are required, such as copper.

We select the copper as it forecast to experience a demand boom in excess of production capacity.

And from all the commodities and metals, we found copper the most attractive investment in terms of supply and demand imbalance and liquidity, reliability of trading.

So that's why we selected copper here.

Third asset class is carbon credits.

We hear a lot about carbon credits in Australia.

And it's a new and important policy instrument.

But carbon credits are already established in many places globally, especially in the EU.

In fact, the EU has the largest carbon allowances market in the world.

Fun fact, the EU trade in carbon allowances is in dollar terms larger than the turnover of the entire Australian stock market.

The EU carbon market is larger in value than the Australian stock market.

Carbon credits have become an investment in its own right, with many carbon funds now trading.

And why do we think the price of carbon is bound to increase?

Well, governments have an interest in higher carbon prices to keep the pressure high on large polluters.

The higher the price of carbon, the better for the environment.

For example, not only is the European supply of carbon kept, but it diminishes every year by 2%.

And we know diminishing supply means higher prices.

And finally, gold.

It will act as a hedge against inflation as it does right now and has done so over the past few months.

And we believe we'll see continuing inflationary pressure during the transition.

Hence, the energy transition supports the value of gold.

A word about valuation and let's look at equities.

I mentioned that selection and valuation is key.

Many clean energy funds invest predominantly in clean tech companies.

And clean tech companies are just another brand of tech companies really.

And the problem there is that that makes them gross stocks often without earnings, but hopes of future cash flows.

This can be illustrated by P ratio, which indicates how much a stock price depends on future earnings.

The higher the ratio, the more important is the company's growth, future growth to justify the present valuation.

Here are two examples, the S&P Global Clean Energy Index and the Selective Climate Change and Environmental Opportunities Index.

Those two indices are linked to two of the most prominent clean energy ETFs on the SCX.

They're PEs 47 and 54 respectively.

And the high PE points to the fact that these indices are dominated by growth companies.

investment in those indices risks to be dominated by factors affecting growth stocks like rights and some P-Tech indices can even be driven by PE expansion and contraction rather than the underlying mega trend.

To avoid this threat we require our companies to be profitable, that means positive earnings in the first place and with a comparatively low PE ratio, so that's a

more conservative valuation relative to the rest of the sector.

And as you can see, we have a PED of roughly 23, but given the nature of the theme are still a bit higher or significantly higher than the broad markets, the SX has one of 14, but then equities only make up around 35% of our strategy.

Now, if you're wondering exactly which

six equities we hold in our portfolio.

You can find that information and so much else on the IM investment markets page of our fund.

You can find us either by scanning the QR code that you see on the screen right now with your mobile phone and take us to the IM page of our offering, or you can use the search function on the IM page.

We are classified as alternative investment and growth, and our fund is only open to wholesale investors.

The disclaimer means we're almost at the end.

And if there's three things I'd like you to remember from this presentation, it's that the energy transition is number one, global, number two, it's long-term, and number three, asset selection matters.

I'm sure you've got many questions, so please get in touch.

We'd love to hear from you.

And this brings me to the end of my presentation.

I hope you found it inspiring and I hand back to the moderator.

Thank you so much and goodbye.

Thank you Gaudi.