Alternative Energy Investing: Spotlight on Solar
20 November 2020
Portfolio Manager Shawn Reynolds discusses alternative energy investing, how it became one of the largest exposures in our natural resources equity strategy and key holdings like Sunrun, SolarEdge and Neste.
Jenna Dagenhart: We're hearing more and more about alternative energy, and California has a goal of being carbon neutral by 2045. But VanEck has been in this space for quite a while. Joining us now to take a closer look at alternative energy is VanEck Portfolio Manager Shawn Reynolds. Shawn, can you discuss how portfolio positioning has changed during this market cycle?
Shawn Reynolds: Yeah. Well, thanks for having us, Jenna. And it has changed quite dramatically. Obviously, the performance of this space has been very strong, so that's added a lot to the exposure, but the truth is VanEck has been exposed to this space for well over 20 years. In the early days of solar, we were there, and in the early days of all sorts of alternative energies from ethanol to wind or whatever. But really started to change in 2015 and 2016, when we started to take a serious look at the profitability of the industry, and how it was going to be sustainable over time. And that's where we established a couple of positions that we still hold today and have been the foundation of building up off that space.
Shawn Reynolds: So the history and the evolution of alternative energy has been there for quite some time. And we continue to look at lots of opportunities, clearly, as they expand quite rapidly in this day and age.
Jenna Dagenhart: And Shawn, can you talk to us a little bit about some of the specific companies that the fund currently holds?
Shawn Reynolds: Sure, I referenced back to 2015 and 2016, when we really started to make a big move into this space. And a couple of the names that we entered back then were Sunrun, which is the largest residential rooftop solar developer in the country. Now, when we participated in the IPO in that company back in 2015, it was a minnow. There were other bigger players out there. We were not invested in any of those companies, but we loved the business model and the management teams that came out of Sunrun. And we've been a top shareholder in that space and in that name, since that time. Interestingly, one of the components that goes into a solar panel is a piece of equipment called an inverter. And we invested in the first or second largest inverter manufacturer in the world, called SolarEdge, with the same theme. We liked to be part of solar, but we wanted to have professional management. Happens to be an Israeli based company, but really, a lot of respect for what they've done over the last five or six years.
Shawn Reynolds: Interestingly, some of the other names are not as pure play as say a solar name or a component name. They are transitioning companies—companies who have traditional businesses that lean towards the basics of what we like to invest in, which again are energy, materials and agriculture, but are changing some of their business models. An interesting play on that is called Neste, which is a finished company, which is a traditional refiner. Actually, it was a diversified industrial for many, many decades, and then, became a refiner, oil and gas. And then a number of years ago, transitioned into renewable diesel. And that's using used animal fats and other organic materials and creating biodiesel or renewable diesel. And they're now the largest manufacturer of renewable diesel in the world, and are extremely profitable.
Shawn Reynolds: So there's lots of different ways to play alternative energy and transitioning energy. And we feel that we've been there for a number of years, but we're continuing to grow and continue to look for other opportunities.
Jenna Dagenhart: And I see that you came prepared for this interview. Shawn, do you mind sharing a little bit more about your VanEck tie there?
Shawn Reynolds: It's a VanEck tie. It's got a windmill and a sun and some water on it. It was our first alternative energy, sustainability tie. VanEck makes a tie every year. And we made this back in 2009, this tie. So I don't know if there's a whole lot left around, but I thought I'd dig it out of the closet and wear it for this conversation.
Jenna Dagenhart: Yeah. Well, very fitting. Shawn, thank you so much for joining us.
Shawn Reynolds: Thanks for having me.
Jenna Dagenhart: And thank you for watching. That was VanEck Portfolio Manager Shawn Reynolds. And I'm Jenna Dagenhart with Asset TV. To receive regular updates from VanEck’s experts, please visit vaneck.com/ucits/subscribe.