Who is excited about the 2021 New York Mets?! Probably not many people, but let’s talk baseball anyway. There is a sweet spot on a bat that hitters try to match with the pitched ball. If executed correctly a ball hit with the bat’s sweet spot will move with much greater velocity into the playing field, and if the trajectory is correct it’ll be gone, goodbye. Thing is, baseball bats have different sweet spots, and similarly investors have different sweet spots. What we’re going to try in this blog post is to identify the various sweet spots a renewable investor can target in today’s market, and keeping with the baseball theme we’ve separated the options into three strategies: (1) the Defensive Specialists, (2) the Matchup Artists, and (3) the Sluggers.
The Defensive Specialists (slow and steady)
We lead off with the Defensive Specialists, which as the name implies targets companies with stable cash flow streams secured with long-term contracts. In baseball the Defensive Specialists are those that combine singles and doubles offensively with strong fieldwork to win the game. Over the last three years the Defensive Specialists posted total return of 16% annually (S&P 500: 13%) on risk attributes well below its renewable peers (beta: 0.90; standard deviation: 16.85%). Investors who prefer the Defensive Specialists prioritize stability and likely income in their portfolios, though still want leverage to a multi-decade megatrend. The downside to the Defensive Specialists is lower relative returns during an upcycle when compared to its riskier peers.
The Matchup Artists (asset specific)
We count three indices among the Matchup Artists, which are stocks that target a specific theme within renewable energy. In baseball this would be similar to matching a left-handed pitcher against a right-handed batter. Not quite as streaky as the upcoming Sluggers, the Matchup Artists posted total returns of 30% annually over the last three years on slightly better risk attributes (beta: 1.19; standard deviation: 29.56%). We believe the Matchup Artists provide an important option for renewable investors seeking to pick-and-choose the secular trends they prefer. The downside to the Matchup Artists is a lack of diversification, where if the specific secular trend selected underperforms expectations.
The Sluggers (broad based)
Finally we highlight the six indices among the Sluggers, which oddly enough are those that own assets up-and-down the renewable chain. You’d think vehicles characterized with broad-based exposure would be lower risk, but that is not what we’ve found. For the Sluggers have posted compelling total return of 39% annually over the last three years, though on outsized risk attributes (beta: 1.36; standard deviation: 31.83%). Furthermore, we found it interesting the vast majority of its high three year returns in fact came in 2020 as the prior two years were +21.1% and -2.1% respectively. So, we think the term Sluggers is apt, since in baseball these players tend to hit home runs but also strike out quite a bit.
We think it’s imperative that investors match their investment goals with the right vehicles, especially in a sector like renewable energy that is still in the early innings. As detailed above, there are several choices in the market, the key is for investors to identify their renewable sweet spot.
*Source: Bloomberg. Please review disclosure information at the end of this post
*No Warranties. The accuracy and/or completeness of any Eagle Global Advisors index, any data included therein, or any data from which it is based is not guaranteed by Eagle Global Advisors, and it shall have no liability for any errors, omissions, or interruptions therein. Eagle Global Advisors makes no warranties, express or implied, as to results to be obtained from use of information provided by Eagle Global Advisors and used in this service, and Eagle Global Advisors expressly disclaim all warranties of suitability with respect thereto.
You Must Make Your Own Investment Decision. It is not possible to invest directly in an index. Index performance does not reflect the deduction of any fees or expenses. Past performance is not a guarantee of future returns. You should not make a decision to invest in any investment fund or other vehicle based on the statements set forth in this document, and are advised to make an investment in any investment fund or other vehicle only after carefully evaluating the risks associated with investment in the investment fund, as detailed in the offering memorandum or similar document prepared by or on behalf of the issuer. This document does not contain, and does not purport to contain, the level of detail necessary to give sufficient basis to an investment decision. The addition, removal, or inclusion of a security in any Eagle Global Advisors index is not a recommendation to buy, sell, or hold that security, nor is it investment advice.