Investing in stocks, bonds and funds is for most people a financial means to a financial end. By investing money now, investors are hoping that they will end up making more at some point in the future.
However, some companies are in the game to change the world for the better as well as make a profit, and their business is soaring, according to Peter Michaelis who heads up Alliance Trust Investments’ range of Sustainable Future funds aimed at sustainable investing.
The manager is backing a host of companies that tap into key trends, promoting things like better human health, lower carbon emissions and cleaner air.
Michaelis (pictured) says one of the major themes the Sustainable Future team at Alliance Trust Investments is looking at is quality of life, this includes companies that help improve our health for example, particularly through healthy eating.
“One of the curses of economic development has been the rise in obesity and bad health with type 2 diabetes massively on the rise. If you look at the World Health Organisation’s statistics, lifestyle diseases, which come from smoking, too much alcohol and eating too much of the wrong stuff, are now killing more people than infectious diseases.” he said.
“We are looking for companies that are succeeding at changing people’s diets and making them healthier. A company like Whitewave is a great example of that.”
US-listed Whitewave Foods has seen its share price boom almost 300 per cent over the past three years thanks to growth in its organic foods business in the US as well as strong returns from the likes of Alpro, which makes soy-based products, in European markets.
“Whitewave’s products are aimed at the growing demand from health-conscious consumers and offering them an alternative to carbohydrate and sugar laden foods that fill our shelves,” Michaelis said.
“There is a trend towards healthy eating that we think will grow and grow. The obesity epidemic is going to be solved, but not by regulation. Tobacco is going to be regulated out of existence but healthy eating is going to go by consumer preference and education.”
A need for cleaner air in cities is the reason Michaelis bought catalytic converter producer Johnson Matthey.
“It is a company we have held for a long time. Catalytic converters go in the exhaust pipes of cars and trucks. It is kind of an oligopoly with only three producers of catalytic converters [in the world],” he explained.
“Every year regulation gets tighter and tighter and tighter because of the number of cars in our cities, and if we didn’t have catalytic convertors our air would be unbreathable because it takes out the sulphur dioxide, among other things.”
“These pollutants give us asthma and produce acid rain. It is a company with very good long-term prospects.”
Performance of stock and index over 5 years
Source: FE Analytics
Another major theme that Alliance Trust Investments is playing is the increasing importance placed upon countries to reduce carbon emissions in key areas such as the generation of electricity and other utilities. This has prompted the holding in a US solar energy firm called SunPower.
“People still like to debate whether climate change is happening or not. 99 per cent of scientists say it is but in a way it doesn't matter because it is now embedded in government policy.” he said.
“The US and China have just agreed a joint bilateral carbon C02 agreement which we think embeds tackling climate change into their policies, and increases the chances of success in the Kyoto Protocol.”
SunPower, which is 66 per cent owned by the oil giant Total, has become known as one of the dominant developers of solar cells. While its stock is up more than 400 per cent over three years, its share price has not recovered to pre-financial crisis highs, which is a further four times the level it is at currently.
However, as all major economies are ‘de-carbonising’, companies like SunPower will see strong long-term growth, Michaelis says.
“In the US, solar energy is comparable with fossil fuel generation. The transition is happening in sunny areas and is coming to other areas too and is part of a big change. The costs of solar cells has come down a lot and so there is big change afoot.”
“Most of the focus and regulation is on electricity generation as it is one of the principal emitters of carbon dioxide. Decarbonising electricity generation is crucial and it is happening rapidly. The US won’t build another coal-fired power station, ever. China is also rapidly moving away from coal, making electric cars much cleaner to run. It is a huge change.”
Backing Kingspan and Acuity, which respectively sell insulation and LED lighting, should help a broader trend towards lower electricity use in commercial buildings, which Michaelis says should lower carbon emissions.
“A major use of electricity is in buildings. They use up half of the energy we use in our economy for heating and lighting.”
“Improved regulation means that every time you build a new building, more insulation must be placed into it. Kingspan has been a very successful investment,” Michaelis said.
Kingspan has seen a huge rise in its share price over the medium term, gaining 221.28 per cent versus the FTSE All Share’s 49.83 per cent.
Performance of stocks and index over 5 years
Source: FE Analytics
“LED lighting has suddenly taken off. It is cheaper, it has no maintenance and uses much less energy, about 85 per cent less than an incandescent bulb. It doesn’t need regulation anymore, all commercial buildings are getting LEDs put in them,” he continued.
“Acuity does this for big buildings and because they don’t need to maintain them, they make a bigger margin. It is a huge growth business.”
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This article is not intended as an investment recommendation and should not be treated as such. Instead it is intended as an example summary of the work we do looking at longer-term changes we anticipate happening in the market which we analyse to inform our investment decisions. This analysis forms only part of what is considered in making an investment decision