Ian Cowie: three trusts I own for the ‘investment boom’ under way

Our columnist, who first invested in this now hotly tipped sector a decade ago, runs through the trio of trusts he owns in his ‘forever fund’. 

Sanctions on Russian oil announced by the European Union yesterday will hurt its own economy, Germany warned this week. But there might yet be unexpected winners closer to home, according to the biggest fund management company in the world.

Robert Habeck, Germany’s economy minister and deputy chancellor, pointed out how heavily the EU relies on the Russian energy it is mulling shunning and said: “We will be harming ourselves, that much is clear. It’s inconceivable that sanctions won’t have consequences for our own economy and for prices in our countries.”

But Larry Fink, chief executive of BlackRock, which has assets under management of $9.6 trillion (£7.7 trillion), was inclined to look on the bright side when he addressed analysts earlier. He claimed an “investment boom” is under way “at the intersection of infrastructure and sustainability” with war in Ukraine forcing countries to revalue energy self-sufficiency and accelerate the shift to renewable sources of energy.

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Fink predicted: “A significant long-term opportunity for investors in infrastructure, renewables and clean technology”.

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Coming down from the clouds, it is more than a decade since this small DIY investor began investing in renewable energy, buying shares in the green hydrogen maker, ITM Power (LSE:ITM). It passes electricity made by solar and wind farms through water to split out the explosive gas.

Sad to say, shares I bought for 41p in January 2010 were sold too soon - at 56p in March 2011 - but I am glad I returned to buy a bigger stake at 124p in January, 2020. Then I took profits at 534p the following January and 446p in March 2021, realising a total of two-thirds more cash than I had put in. ITM pays no dividends, but I retain a substantial stake in the Sheffield-based firm that traded at 320p this week.

Such volatility demonstrates that individual businesses in this sector are much riskier than diversified exposure via investment trusts, some of which also reward investors with income. That’s why most of my renewable energy exposure is now achieved via three investment trusts that have experienced very different degrees of failure and success so far.

Let’s start with the worst, because I know that some of you enjoy my pratfalls more than my profits. Step forward US Solar Fund Ord (LSE:USF), sterling-denominated shares, in which I first invested at 79p in November 2020, and which traded at a distinctly underwhelming 71p this week. 

To be fair, chief investment officer Liam Thomas fulfilled his yield promise of 2020 when he told me about its 41 solar farms across California, North Carolina, Oregon and Utah and added: “We are in a strong position to commence a 5.5% dividend level in 2021.”

They did, too, but - surprise, surprise - it was a politician’s promise that proved less reliable. Thomas said: “Solar has become the cheapest form of energy production in most of America and this market is growing fast. US president Joe Biden has promised to push to achieve a 100% clean energy economy.” That cheque remains in the post, but it is good to see USF is currently yielding 6.1%, according to independent statisticians Morningstar. As these shares are held in my ISA, the tax-efficient income more or less offsets the capital loss.

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Gore Street Energy Storage Fund (LSE:GSF) rewards investors with a bigger dividend yield of 6.9% and also achieved modest capital growth. It invests in industrial-scale batteries, which generate profits from inevitable fluctuations in solar and wind power and its market price. Shares I bought for 105p in November 2020, traded at 117p this week.

That’s a reasonable return from what I always regarded as being akin to a bond fund; primarily about income rather than growth. However, I do fret about GSF shares trading at an 11% premium to their net asset value (NAV), compared to USF’s discount of 8% below NAV.

Then again, GSF has delivered total positive returns of 19% over the last year, compared to -7% shrinkage at USFP, according to Morningstar. So perhaps you get what you pay for.

Ecofin Global Utilities & Infrastructure (LSE:EGL) stands head and shoulders above the rest in my triumvirate of investment trusts offering exposure to renewable energy. Shares I bought for 152p in September 2019, cost 225p this week and have a yield of 3.3%.

Better still, it has increased dividend distributions by a remarkable annual average of 33% over the last five years. If that rate of ascent was maintained - which is not guaranteed - then shareholders’ income would double in just over two years. That seems unlikely, to be candid, but EGL shares are trading more or less in line with NAV, so do not look expensive.

One explanation is that it has a mixed portfolio, including conventional utilities with renewable energy interests - such as SSE (LSE:SSE) and Iberdrola (XMAD:IBE) - as well as its top holding, NextEra Energy (NYSE:NEP), which is probably the biggest renewable energy business in the world. That mixture, as well as EGL sitting in the Association of Investment Companies (AIC) ‘Infrastructure Securities’ sector - rather than the more popular and highly priced ‘Renewable Energy Infrastructure’ sector - may explain the absence of premium to NAV.

Either way this small shareholder is relatively relaxed with the mixed performance of my renewable energy investment trusts. Whether Herr Habeck or Mr Fink is proved right, healthy dividends from EGL, GSF and USF will pay investors to be patient.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Ecofin Global Utilities & Infrastructure (EGL), Gore Street Energy Storage (GSF), ITM Power (ITM) and US Solar Fund (USF) as part of a diversified portfolio of investment trusts and other shares.