This is the sixth article in a new series from Good With Money: “How To Invest In Renewable Energy,” produced in collaboration with Mint Selection, a renewable energy finance and project development recruitment consultancy.
The end of the tax year is looming and – lucky you! – you see you are close to your £20,000 annual ISA savings limit and still have some cash left to spare. You’ve already set up a stocks and shares element, a Lifetime ISA element and an IFISA element and now you’re wondering: “Are there other ways I can diversify my portfolio with renewable investments?”
Hopefully, you’ve made the most of our How to Invest in Renewable Energy guide and you already have a slug of equities – listed or otherwise – perhaps some corporate bonds, or maybe some community debentures padding your portfolio. In which case, you might be looking for something a little more ‘out there’ to add that final slug of diversification.
Emerging market funds
Often, the first place investors start when it comes to diversification are emerging markets – where opportunities can be on the wild side, though typically have promising growth prospects. While UK investors – perhaps sensibly so – are rather limited in terms of what they can invest in this area, a few opportunities exist.
For some exposure among a broad range of other investments you could consider a sustainable emerging market fund. One of the leading providers is Stewart Investors, which boasts three emerging market sustainability funds: Asia Pacific Sustainability, Global Emerging Markets Sustainability and Indian Subcontinent Sustainability.
While having little in the way of specific exposure to renewable energy, these funds do invest in suppliers to the industry, as well as companies considered to be contributing positively to the sustainable development of these developing economies.
Social impact fund manager Alquity holds Brazilian engineering business WEG in both its Latin America and Future World funds, which has a division that builds turbines for wind power generators. Like all of Alquity’s funds, a proportion of profits are also ploughed into small-scale community impact projects in the invested country – adding a social bonus to positive climate impact.
Sticking with developing markets, those looking for truly different opportunities could investigate the range of solar bonds offered by Energise Africa. An initiative from UK impact platform Ethex and its Dutch counterpart Lendahand, Energise Africa allows savers to invest as little as £50 directly into companies that provide solar panels for homes in rural Africa.
Energise Africa regularly issues bonds, typically spanning 18 months to four years in duration, which pay an annual yield of between 5 and 7 per cent. They are IFISA eligible and also fee free. If, however, you have already filled your IFISA allowance for the year, you won’t be able to add this now as you can only have one IFISA with one provider in any tax year. You’ll have to wait until April, or invest outside an IFISA.
While these are about as Good as you can get, remember that these types of unlisted and illiquid investments are also very high risk and the Financial Conduct Authority recommends that investors limit them to no more than 10 per cent of investible assets (not including property), to be on the safe side.
Peripheral renewable players
If you are interested in checking out those on the sidelines of the industry, perhaps investing in the engineers or manufacturers that help the cogs of the renewable energy machine run smoothly might be for you.
Scoping out individual companies is typically a job for the dedicated (and potentially retired) stockpicker. If this is you, a good place to start is the business pages of the Financial Times and other broadsheets. Here you can watch for companies involved in the renewable sector and track opportunities. Check out our ‘Tools for Analysis’ in the second part of our guide for how to weigh them up.
Those with less time on their hands, though, can look to investment trusts that invest in renewable infrastructure. These include The Renewables Infrastructure Group, John Laing Environmental Assets and the Gresham House Energy Storage Fund.
Collectively these trusts manage over £2 billion of investor money and give a broad exposure to all areas of the renewable energy sector. Launched in 2013 and with £1.3 billion under management, The Renewables Infrastructure Group is by far the biggest and also boasts the strongest three-year return (39 per cent to 12 March 2019).
Established just a year after in 2014, John Laing Environmental Assets manages around £522 million and delivered a not too shabby three-year return of nearly 30 per cent while – launched in November 2017 – the Gresham House Energy Storage Fund is a completely new kid on the block involved in one of the newest areas in the sector.
Whatever you choose make sure that – if you can – you use up that ISA allowance. The taxman rarely gives us a break and the ISA really is the gift that keeps on giving as your savings pile up over the years. For more, check out the Good Guide to the Stocks and Shares ISA.