How the £583m Bluefield Solar Income fund is benefitting from a 'transformative market'


The outlook for the renewables fund sector is looking more positive than ever as demand continues to grow from investors searching for yield and renewable energy becomes part of the “mainstream” according to James Armstrong, managing partner at Bluefield Partners.

In its annual results released last week for the 12 months to 30 June, the £583m Bluefield Solar Income fund revealed a NAV total return of 18.5%, a share price total return of 23% and a third consecutive year of dividend outperformance against its targets (see table, right). 

It is also the top performing fund in its AIC Infrastructure – Renewable Energy sector over one and three years.

Popularity

Armstrong, who founded and manages Bluefield alongside Mike Rand and Giovanni Terranova, attributes its success to being in a sector that is becoming increasingly popular, while using a focused and simple strategy.

‘Traditional asset classes cannot be relied upon to provide enough diversification in multi-asset portfolios’

He said: “Solar assets are the most predictable and simplest area within renewables. There are no moving parts, gear boxes or wind turbines and its energy source comes in the morning and goes at night.

“Solar power is also becoming more mainstream. Some of the UK’s biggest companies are committing to becoming 100% renewable, which is something that will not turn back now.

“We entered the space in 2006 when renewables were esoteric but now new government policies and concepts such as electric vehicles show we are in the middle of a transformative market. There is now a level playing field, which is more attractive to us.”

Stability

As a result, the team believes renewable energy is a stable asset class and the low interest rate environment means the space is particularly attractive to investors hunting for yield.

The trust is currently yielding 6.4%, which is 0.8 percentage points above the sector weighted average, according to Canaccord Genuity.

Since its launch in 2013, the trust has followed a full pay-out model, whereby all income is paid to shareholders and not held back. For a third year running, it has exceeded its dividend per share target and declared a fully-covered DPS of 7.25p.

The alternatives sector has become more popular in recent years, particularly within the investment trust space as the closed-ended structure means investors do not need to worry so much about liquidity issues.

Armstrong added: “Trusts are also cost-effective and more transparent. It is a structure which enables assets to grow in a sensible way.”

Growth 

A study released earlier this year by the Association of Investment Companies (AIC) revealed the top 20 fastest growing trusts by AUM were all within the alternatives sector, with renewable energy and social housing funds being the most popular.

Bluefield Solar Income came in eighth place, having seen a 332.5% increase in AUM as at July 2017, since it launched with just £130m in July 2013.

But despite this success, Armstrong said the team never sets itself a false target.

He added: “We do not need to reinvest earnings to make returns. We just buy at the right price and pay out all the earnings. We are pleased to say we could make no investment today, yet we could still deliver returns to our shareholders.”

Over three years to 18 September, the trust has returned 32.5% in share price terms, outperforming its sector average return of 27.9%, according to FE Trustnet. 

It is currently trading on a 4.4% premium, in line with its 12-month average. 

1&1 Hosting


Source link