Fund Update: JB EF Energy Transition-USD B

Performance Review 2008

Performance Review 2009

Roberto Cominotto: “We started to gradually position the fund more aggressively between February and July 2009 as we became more confident that the financial crisis was past its peak and that equity valuations would offer attractive investment opportunities going forward. During the same period we also significantly increased our exposure to the Chinese solar industry as demand started to show first signs of improvement and Chinese authorities began to introduce solar subsidies for the first time.
As a result, we achieved a very strong performance for the year, significantly outperforming the New Energy peer group.”

Performance Review 2010 - Year-to-Date

Roberto Cominotto: “2010 has been a difficult year so far for energy investments. Oil prices have declined slightly year-to-date, the BP oil spill in the Gulf of Mexico has hit oil service companies, and uncertainty over subsidy cuts in Europe have put pressure on renewable energy companies. However, since early July, the trend seems to have reversed, as the fears concerning the oil service industry and renewables are increasingly looking overdone. With fears of an economic double dip receding and valuations in the energy sector at very attractive levels, this positive trend is likely to continue.”

Performance Review since 2008

Roberto Cominotto: “Over the full period since October 2008, the fund performed better than the overall equity market and significantly better than the New Energy peer group. The fund benefited from a recovery of oil prices, improved availability of project financing and growth in various energy efficiency and alternative energy markets.”

Investment Process and Strategy – How does the Fund Manager Invest?

Roberto Cominotto: “The Julius Baer Energy Transition Fund offers investors the possibility of investing in the most promising growth companies along the entire energy value chain. Given the massive subsidy measures, companies offering climate-protection solutions currently account for around two-thirds of the portfolio. In addition to solar, wind, oil and gas, we also focus on companies that improve the efficiency of energy systems with a wide range of energy-efficient technologies for power transmission, buildings and transport.

The growth themes described below are all about solutions to the critical challenges of the energy industry today and tomorrow:

1. Oil and gas resource plays
Hydrocarbons will continue to be the dominating primary energy source. Companies with access to resources and low production costs stand to benefit the most.

2. Oil and gas services & equipment
Oil and gas producers will have to invest more to meet future energy demand. Furthermore, new oil and gas discoveries are smaller, located in remote places and difficult geologies. The service and equipment intensity will increase.

3. Nuclear
Nuclear power is almost free of CO2. The nuclear renaissance has already started. Nuclear power utilities benefit from rising energy prices.

4. Liquefied natural gas (LNG)
Natural Gas is the cleanest fuel available today in large scale. LNG will solve transportation limitations and transform the natural gas market from a regional into a globalised market.
 
5. Hydro power
Traditional hydro power generation is the most developed and most mature renewable energy source. Significant growth potential still exists in developing countries.

6. Clean coal
Coal is abundant, located close to demand and easy/cheap to produce. Technologies exist and will continue to be developed to turn coal power plants into clean(er) plants.

7. Wind
Wind is the most advanced alternative energy technology. Wind energy installations are almost free of CO2 and faster to establish than nuclear power plants.

8. Solar
Solar energy is an almost cost free and unlimited supply of energy.

9. Power grids
Electricity consumption growth is creating Transmission & Distribution (T&D) bottlenecks. Smart grids solve the problems of decentralised renewable energy generation and energy losses in T&D.

10. Green buildings / lighting
Heating and lighting cost as well as CO2 emissions can be lowered substantially without impairing the comfort level. Key technologies and measures include: insulation, efficient heating/cooling systems and domestic appliances, lighting, solar panels.

11. Smart mobility
Advanced battery technologies and other components for hybrid cars and emission controls offer solutions for one of the main greenhouse gas emission contributors.

12. Geothermal
Geothermal energy is derived from thermal energy stored in the earth and can be used directly for residential heating as well as power generation.

These 12 growth themes provide the basis for our investment universe. In a next step stocks are selected based on a bottom-up process which will be outlined in the following.

A: Defining the Investment Universe
The investment universe consists of large, medium and small cap companies with a substantial exposure to the 12 growth themes listed above. We have identified approximately 400 companies in our universe. In addition, the fund can also have up to 10% exposure in energy related commodities and CO2 emission certificates.

B: Stock Selection - Top down
The top-down perspective is very important in these industries since earnings and ultimatively share prices can be driven significantly by industry trends, commodity prices, regulatory developments and macroeconomics. Our regular discussions with the various industry specialists in our Energy Team ensure that we detect such trends early and are able to position our investments accordingly.

C: Stock Selection - Bottom up
Our bottom-up analysis is focussing primarily on the companies’ products or service offering, technological risks, competitive position, earnings expectations and balance sheet. We apply various appropriate valuation methodologies and metrics like P/E, EV/EBITDA, P/Sales, P/Book Value and Discounted Cashflows depending on the industry characteristics.

D: Portfolio Management
Stock selection decisions are done by the fund manager on the basis of the process outlined above. The portfolio is generally composed of 50-70 large, mid and small cap companies. The weighting of each of the 12 growth themes described above is capped at 20% with the aim of reducing risk related to one single market. The investment strategy is not linked to any benchmark index. Therefore, the fund manager has no obligation or inducement to hold any index heavy weights just for the sake of tracking a benchmark index. This is particularly important for energy investments since most index heavyweights do not have significant exposure to the most promising growth markets.

Within the investment process focusing on the top-down and bottom-up process risk management plays an important role. Beside risk management within the investment process, an independent team responsible for Risk Management & Controlling will additionally take care of this issue."

Investment Outlook

Roberto Cominotto: “The negative performance trend which started in April of this year, has turned in early July as pessimism on the oil service industry and renewables increasingly looked overdone. With fears of an economic double dip receding and very attractive valuations in the energy sector, this positive trend is likely to continue. For the first time in many years the sector is offering strong growth prospects and at the same time very low valuations.

Medium to longer term, steadily rising demand for energy in the emerging countries, dwindling resources of easily accessible oil and the impact of fossil fuels on the environment are leading to fundamental changes in the energy markets. These are opening up exceptional opportunities for investors all along the energy sector value chain.”