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Outlook for Sustainable Supply Chain Investment Soars

May 05, 2023

Read Time 4 MIN

The details about the Inflation Reduction Act released by the Treasury have been supportive of fluid geopolitical supply chains and show that regulators are cognizant of growth limitations.

9 Years of Sound Policy > 10 Years of Slapdash

Since the passing of the Inflation Reduction Act (IRA) over half a year ago, we have witnessed a swell of interest. Players across the globe, up and down the value chain of energy transition, have preferred the U.S. to build out supply chains given the attractive and direct impact on project economics and cost savings. In the last eight months, $150 billion of domestic manufacturing projects across storage, solar, and wind have been announced with expected online timeframes within the next three years.1 For context, this amount surpasses the total investment in these areas between 2017-2021.

Average Annual Total Returns (%) as of March 31, 2023
  1 Mo YTD 1 Yr Life
Class A: NAV (Inception (7/13/21) 1.53 6.53 -13.18 -13.44
Class A: Maximum 5.75% load -4.31 0.40 -18.18 -16.38
GDUEACWF Index2 3.15 7.44 -6.96 -4.54

Average Annual Total Returns (%) as of December 31, 2022
  1 Mo YTD 1 Yr Life
Class A: NAV (Inception (7/13/21) -11.28 -24.42 -24.42 -19.08
Class A: Maximum 5.75% load -16.38 -28.77 -28.77 -22.28
GDUEACWF Index -3.90 -17.96 -17.96 -9.80

The tables above present past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect applicable fee waivers and/or expense reimbursements. Had the Fund incurred all expenses and fees, investment returns would have been reduced. Investment returns and Fund share values will fluctuate so that investor’s shares, when redeemed, may be worth more or less than their original cost. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Index returns assume that dividends from index constituents have been reinvested. Investing involves risk, including loss of principal; please see disclaimers on last page. Please call 800.826.2333 or visit for performance current to the most recent month end.

 Monthly returns are not annualized.

Expenses: Class A: Gross 5.79%; Net 1.25%. Expenses are capped contractually until 05/01/24 at 1.25% for Class A. Caps exclude acquired fund fees and expenses, interest, trading, dividends, and interest payments of securities sold short, taxes and extraordinary expenses.

August 2022 - March 2023: 46 Manufacturing Facilities Announced; $150bn in Capital Investments

August 2022 - March 2023: 46 Manufacturing Facilities Announced; $150bn in Capital Investments

Source: Data as of March 2023.

However, we suspect the investment pie is significantly bigger. We have heard increasingly from corporates and their customers a reticence to rush into project buildout – largely as we are still awaiting further clarification on specific details of the bill from the Treasury. Further down the value chain on grid-connected projects, we have heard from numerous sources that the demand far exceeds the regulatory capacity to green-light proposed projects, with queues in some jurisdictions surpassing three years. Specialized labor has been another pinch point, as there are insufficient engineers and technicians to staff new manufacturing facilities for inverters, batteries, and other technologies requiring specific expertise, and training takes time. General supply chain issues that plagued the industry in 2022 seem to be moderating, as are logistics bottlenecks – but industry participants are cautious to stir up those issues to add to the longer-dated, more structural issues related to the domestic supply chain build-out currently unfolding.

What Does This All Mean?

An operator at one of our holdings summed up his sentiments nicely: “I’d rather have 9 years of a well-thought-out policy than 10 years of modifications down the line.” The Treasury has been releasing details addressing different parts of the extensive bill throughout the year, with industry experts expecting some of the most anticipated ones toward greenfield manufacturing to be released later this year. We have already witnessed a preliminary rush of buildout announcements on the upstream side and expect this to help supply the slew of projects that will undoubtedly come online once they pass the regulatory hurdles. Reassuringly, details around what has been released so far seem to reflect that regulators are cognizant of the limitations to growth, particularly regarding critical mineral supply chains and the timing and capital investment necessary to build them to scale in the U.S.

Quarter in Review

The VanEck Environmental Sustainability Fund (Class A Shares) returned 6.53% during the first quarter of 2023. Portfolio performance was supported by investments around the electric vehicle (EV) supply chain, on the back of incremental Treasury announcements around the IRA that were more supportive of fluid geopolitical supply chains and less stringent requirements around qualification for the EV tax credit in the US.

There were several changes to portfolio positioning during the quarter. The table below highlights several of the notable additions and exits.

Name Action Sector Rationale
Array Technologies (1.92% of Net Assets as of 3/31/2023) New Position Renewable Energy Solar tracker manufacturer benefitting from strong U.S. utility growth and a sizable runway for margin expansion.
SolarEdge Technologies, Inc. (5.02% of Net Assets as of 3/31/2023) Increase Position Renewable Energy Reallocated from peer ENPH on better than expected execution amidst Europe strength.
MP Materials (1.04% of Net Assets as of 3/31/2023) Increase Position Advanced Materials Attractive valuation following negative headlines regarding substitution risk which we believe are overblown and a minor proportion of MP’s addressable market.

Exits and Reductions
Name Action Sector Rationale
Enphase Energy (2.53% of Net Assets as of 3/31/2023) Reduce Position Renewable Energy Reducing exposure to US residential solar given NEM 3.0 weakness. Anticipating slowdown in residential demand near term.
Fluence Energy Exit Position Renewable Energy Inconsistent business strategy and poor management execution.

An expanded PDF version of this commentary can be downloaded here.

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Important Disclosure

1 American Clean Power, Clean Energy Investing in America, April 2023.

2 (GDUEACWF) The MSCI AC World Daily TR Gross USD captures large and mid cap representation across developed and emerging markets and countries and covers approximately 85% of the global investable equity opportunity set. The MSCI benchmark is a Gross Return index which reinvests as much as possible of a company’s gross dividend distributions.

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