Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
A radical energy transition is underway, driven by a combination of environmental, policy and technology factors. Our energy system is being electrified and decarbonised, switching away from fossil fuels into clean, renewable sources of energy. The effect will be transformational.
Batteries are a key enabler in the energy transformation story. In the transportation market, electric vehicles (EVs) need a portable electricity source. Batteries are that solution. In power markets, renewable sources of electricity including wind and solar can be intermittent. Some days you get a lot of sun or wind; other days not so much. It is difficult to match the demand for electricity with the instability in natural elements. Batteries can store excess production and release it at times of higher demand. These Energy Storage Systems (ESS) can be employed both at source at the utility level or at the consumer level with residential battery storage.
The WisdomTree Battery Solutions UCITS ETF covers the battery value chain: everything from the raw materials that are processed to chemicals, that are made into cells and battery packs. It also covers the ecosystem of industries that are needed to support batteries and their applications. This includes charging infrastructure, the battery recycling industry and grid edge.
WisdomTree has teamed up with Wood Mackenzie - a Research and Consultant company in the energy and metals space - to design the index underlying the fund. Their expertise in the subject matter ensures that the index covers the most important aspects of the value chain and continually evolves with emerging megatrend.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
Coming into the COVID-19 crisis it was unclear whether the efforts to decarbonise would be derailed as priorities of policy makers and consumers could have changed. However, the evidence so far indicates that the decarbonisation effort is intensifying.
Renewable power is growing robustly and defying the difficulties posed by the COVID-19 pandemic. According to the International Energy Agency (IEA), renewable energy production rose while coal, gas and oil output fell in 2020.
Electric vehicles - an alternative to internal combustion engine vehicles - are growing rapidly. Battery electric vehicles and plug-in hybrid electric vehicles are likely to account for just under 3% of auto sales in 2020 according to Wood Mackenzie. According to their forecasts that should rise to close to 40% by 2040.
We have additionally introduced environmental, social, and governance (ESG) screens into our index, helping the fund position itself appropriately for the increasing social and environmental consciousness of investors.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
With 93 constituents, the fund is well diversified. However, there are some names that stand out in terms of their individual contribution. For example, Plug Power Inc, a US company which started its life in 1997 as a company providing hydrogen fuel cells for forklifts operating in warehouses by Amazon, Walmart and Home Depot is seeing great expansion across a broad spectrum of transportation, aerial and stationary applications. SolarEdge Technologies, a US company is a leader in smart energy technology that makes everything from inverters to photovoltaic (PV) systems to energy storage and backup systems to grid services. Present across many parts of the battery value chain it was well positioned to excel. Contemporary Amperex Technology Co., Limited, a Chinese company is the largest battery manufacturer in the world according to BNEF data (when combining fully commissioned and under construction manufacturing facilities).
As an economic recovery takes shape in 2021, an increase in power consumption and vehicle sales is likely to continue. We believe that will be positive for the battery value chain. Falling costs of batteries will continue fuel their adoption as electric vehicles will soon start to become price competitive with their internal combustion engine equivalents.
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