Investment Strategy
Electron Approach
One Vision, Flexible Product Offerings
Electron deploys a differentiated investment solution, seeking non-directional, risk adjusted returns across global equity markets. While our investable universe and market opportunity set have naturally evolved over the years, our investment strategy and research process have remained consistent – focusing on fundamental, bottom up investing against the backdrop of large-scale structural change at company, sector, and geographic levels.
Electron Edge
Our process starts with a focus on structural change – embracing the myriad of electricity markets’ differences around the globe, which make it the least regionally correlated sector of all the MSCI global sectors. We believe Electron’s multi decade relationships with clean electricity companies and expertise investing globally in the industry gives us key competitive advantages against our peers and the broader market.
Center of the Energy Transition: In our view, the transition is predominately driven by (i) decarbonizing the electrical grid and (ii) the electrification of everything. Today, electric utilities are the largest buyers and developers of clean energy and related technologies – while also contracting companies focused on the engineering and construction of transmission and distribution networks to meet the growing consumer demand for clean electricity – making them key drivers and enablers for a successful transition.
Structural Changes: Investing globally through multiple market cycles has made us experts in the early identification of key structural changes (e.g., company, sector, geographic levels). Therefore, we often ask ourselves, “where have we seen this movie before?”
Diversification: Investing across four relatively uncorrelated regions, while concentrating exposure in the globe’s most attractive alpha opportunities at any given time.
Electron Focus
We allocate capital dynamically to what we believe are the most attractive alpha opportunities in the global utility industry, and subsequently, the global clean energy and infrastructure industries.
Electron’s universe of clean energy, infrastructure, and utility stocks – collectively making up the “Energy Transition” – is deep, comprising approximately 696 companies with a market cap of approximately $14.5 trillion.
Clean Energy
Electron has been investing in clean energy since its inception in 2005. Stocks covered within Electron’s investable universe include standalone wind, solar, biomass, and hydrogen fuel cells, batteries, efficiency plays (e.g., smart homes/meters), and electric vehicles (EV). Today, we continue to invest in clean energy sources and have seen explosive growth in new companies and attractive opportunities within this sector – both long and short.
The exponential growth of the sector seen in recent years can be attributed to the rise of EVs, which are rapidly displacing gasoline-powered automobiles due to lower operating costs, as well as increasing regulation and corporate commitments to phaseout the internal combustion engine (ICE). To maximize decarbonization efforts, the electricity generated to charge EVs should feature a significantly greener mix from renewable sources than in existence today, further propelling growth of the sector.
Other technologies, including battery storage, solar, and wind, are also providing significant investment opportunities. For example, battery (specifically lithium-ion), solar, and wind costs have fallen dramatically over the last three decades, further supporting the economic viability and power reliability of clean energy.
Infrastructure
Infrastructure assets have historically been a core allocation within Electron’s portfolio. Stocks within Electron’s investable universe have primarily consisted of real assets – bridges, tunnels, toll roads, ports, and airports. These companies typically have regulated rates of return, long-dated spending plans, and are able to pass through rising inflation costs overtime, making them attractive assets to investors.
More recently, Electron’s infrastructure portfolio has evolved to include companies focused on EV charging infrastructure, as well as engineering and construction of transmission and distribution networks to meet the growing consumer demand for green electricity (i.e., EVs, utility/residential solar and wind, smart residential/commercial buildings, etc.).
Public infrastructure assets are attractive due to the significant expenditures needed from governments and companies to facilitate a growing demand for clean electricity. As new and innovative consumption technologies expand (e.g., EVs), more clean energy generation is needed. Climate change and adverse weather events also necessitate the need for expenditures to make the grid more robust.
Utilities
Utility stocks, particularly those transitioning their generation fleet from dirty (i.e., coal) to clean (i.e., solar/wind), are foundational to Electron’s portfolio and research process. Stocks within Electron’s investable universe include electric, gas, water, and waste utilities. Today, electric utility companies sit at the center of the Energy Transition and are both significant beneficiaries, enablers, and drivers to decarbonize economic activity. Electric utilities are also well positioned to be the beneficiaries of the impending influx of capital to rebuild the aging electrical grid and add additional transmission and distribution capacity to support future clean energy projects.
It is customary for Electron to conduct several hundred meetings per year (on average) with management teams, regulators, and industry consultants related to utilities. The outcome of this research significantly enhances our understanding of the ecosystem for energy production and consumption and gives us a competitive edge in identifying key structural changes before other market participants.
Given their large customer bases and low cost of capital, today’s electric utility companies have evolved to become some of the largest developers of clean energy in the world. Additionally, utility companies are at the forefront of sustainable development for novel, innovative technologies – wind turbines, solar panels, battery storage, transmission and distribution infrastructure, efficiency technologies, etc. – making them key enablers of the Energy Transition.