Performance Review 2006
(Time period 31.12.2005 – 31.12.2006)
Olaf Martin: "The Vontobel Fund – Global Trend New Power Tech* advanced about 19% in 2006 and exceeded its benchmark, the MSCI World Index, by 11%. Our overweight positions in the alternative energy sub-theme contributed positively to the performance of the fund. Political developments had a large impact on the performance of alternative energy companies. Discussions about global warming and the safety of energy supply intensified. During the first quarter, the fund´s holdings in the solar energy sector were the best performers. However, in the second and third quarter, solar and "green" energy stocks were a drag on the fund´s performance. During the last quarter of the year, wind energy stocks and biogas companies were the best performers."
* Name change to Vontobel Fund – Global Trend New Power after 30.7.2007
Performance Review 2007
(Time period 31.12.2006 – 31.12.2007)
Youri Vorobiev: "The Vontobel Fund - Global Trend New Power continued to significantly outperform its benchmark during the entire year of 2007. It generated a return of 42%, whereas its benchmark lost about 1.7%. 2007 was a very strong year for the new power sector, with growing global political support and good economic development, alongside innovation and supply-demand disparities buoying the sector. The strongest performance during the whole year came from the solar energy companies in the fund."
Performance Review 2008
(Time period 31.12.2007 – 31.12.2008)
Youri Vorobiev: "The first quarter of 2008 was sluggish with global markets experiencing panic sell-offs, high volatility and sharp interest rate cuts, stemming from the collapse of the subprime mortgages in the U.S. Robust performance contribution came mainly from energy efficiency and natural-gas players. During the second quarter, the fund substantially benefited from our broad exposure to rising energy prices. The sharp increase in the oil price proved to support the "new power" area. Therefore, both the renewable energy and energy efficiency sectors backed the strong performance of the fund. The third and fourth quarter was characterized by high volatility. Alternative energy stocks were hit hard during the whole period when investors sought safe-haven assets. Additionally, many solar and wind installation projects and developments were postponed due to lack of credit and financing. In 2008, the fund dipped -51.0% compared with a plunge of -37.6% for the MSCI World Index."
Performance Review 2009
(Time period 31.12.2008 – 31.12.2009)
Youri Vorobiev: "The fund had a bumpy ride during the first quarter of 2009, alongside the broad market, which was under pressure from weakening global economy, continuing concerns over the health of the U.S. banking system and the housing markets. In the second and third quarter of 2009, positive headlines related to the new power theme included increasing government spending in alternative energy and energy efficiency programs in both developed and developing countries. At the beginning of the fourth quarter, however, the sector had to endure a volatile period on the back of mixed corporate earnings and uncertainty stemming from potential cuts in solar subsidies by the German government. However, the underperformance came mainly from the stock selection in the wind sub-theme. The fund generated a return of 24.1% during 2009, while the index returned 25.9%."
Performance Review 2010
(Time period 31.12.2009 – 31.12.2010)
Youri Vorobiev: "Throughout 2010, investors were concerned about a shift from excess demand to oversupply in the solar industry. This had implications on prices and on expectations of an industry consolidation. In the wind sector, investors focused on the gloomy picture in the U.S., weak turbine prices around the world, and on the impact of the sovereign debt crisis on Spanish and Portuguese companies active in the wind sector. As a consequence, the performance of most renewable energy stocks was disappointing. On the positive side, U.S. President Obama signed the USD 858 billion tax-cut bill, which also extended several incentives for the renewable energy industry. Another positive signal was the increasing pace of smart-grid construction and smart-meter deployments in the second half of 2010. Most notably, China looks set to invest around USD 660 billion to build a smart-grid network by 2020. In the third quarter, positive contributors were for example the Chinese solar players. The fund generated a return of 6.2% during 2010, while the index returned 19.5%."
Performance Review 2011 - Year-to-Date
Pascal Dudle: "After an initial post-Fukushima euphoria, which sent share prices in alternative energy sector higher, investors focused on the short-term weakness in demand for solar installation yet again. Corporate results for the second quarter related to the "new power" sub-themes have been a mixed bag so far. Good numbers failed to elevate the share price, while cautious outlook statements send investors fleeing. This demonstrates clearly how fragile sentiment is and how risk-averse investors currently are. However, merger and acquisition activities in the smart-grid area have picked up. Large established companies such as ABB, GE, Toshiba and Schneider are all determined to get a strong foothold in smart-grid-related industries.
In the first quarter, outperformance stemmed from stock selection and sector allocation in capital goods, semiconductors and equipment sectors. The underperformance in the second quarter was mainly due to a negative return from stock selection in capital goods and semiconductor sectors. In July, the relative underperformance was attributed primarily to negative return from the semiconductor and equipment sector.
The fund generated a negative return of -11.2%, while the index returned -3.5% (as at the end of July 2011)."
Performance since 2006
(Time period 31.12.2005 – 31.07.2011)
Pascal Dudle (Portfolio manager of the fund since 13.12.2010): "Since 2006 until year to date, the Vontobel Fund - Global Trend New Power has endured a long and volatile period. In general, events outside the control of the portfolio manager have impacted the equity markets.
The enthusiasm in alternative-energy and energy-efficiency investments gave way to investors´ fears when the global financial system was at stake because of the U.S. subprime mortgage fiasco in 2007. As the credit markets ceased to function and banks around the world stopped lending, alternative-energy stocks suffered disproportionally, as they were perceived as high-risk. At the same time, installation demand in alternative energy such as solar and wind dried up completely. This had a huge negative impact on the fund.
Equity markets began to recover in early March 2009 on the back of huge financial stimulus from governments and central banks. Alternative-energy and energy-efficiency stocks also rebounded alongside the broad markets.
However, investors concentrated mostly on economically sensitive sectors and financial stocks, which were the obvious beneficiaries as global economy exited from the recession. This explained the fund´s underperformance against MSCI World Index as the fund would not have holdings in the financials sector."
Investment Process and Strategy – How does the Fund Manager invest?
Pascal Dudle: "The Vontobel Fund - Global Trend New Power is an actively managed, thematic global equity fund with a bottom-up investment approach.
The investment idea behind the fund is based on the conviction that over the next few decades we will see a dramatic increase in demand for energy that cannot be satisfied by the supply of traditional energy sources. The fund invests in renewable energies such as solar and wind power, as well as companies specializing in energy efficiency. Those companies will benefit from the growing imbalance between energy supply and demand.
Companies operating in the "new power" area cannot be assigned to traditional sectors. A research-intensive selection process is therefore required. Fundamental sector changes are often valued wrongly, as equity markets systematically persist in their short-term thinking - thus overlooking far-reaching valuation drivers. Our portfolio manager focuses on two distinct areas in order to understand and establish a company´s value drivers: first, management is capable of positioning their enterprise within the energy market´s value chain (strongly based on innovation, new technology and efficiency improvements) by implementing a growth strategy which fits their competitive position. Second, cash flow return on investment that increases and exceeds its cost of capital. The portfolio manager looks for companies that manage to grow their market shares and provide sustainable earnings. Companies with short track records are only suitable for the fund´s research driven approach if their expected profitability matches the portfolio managers´ qualitative requirements."
Investment Outlook
Pascal Dudle: "Markets remain subject to a number of risks and uncertainties, including the euro-zone debt crisis and the outlook of the U.S. economy. While these uncertainties are likely to dominate the sentiment in the short to medium term, leading indicators point to major economies settling to a lower, but positive, growth rate.
Despite disappointing near-term share price performance, there are positive trends for the European offshore wind power industry. Installations in the first half of 2011 rose 4.5% from a year earlier according to the European Wind Energy Association. Eleven offshore wind farms worth about EUR 8.5bn with total capacity of 2,844 megawatts are being built in Europe.
Likewise, clean-energy investment has rebounded sharply in the second quarter, reaching USD 41.7bn in the U.S. alone. The bulk of this investment has gone into concentrating solar power plants, utility-scale renewable energy projects, as well as clean energy companies.
Though we acknowledge the short-term worries surrounding alternative-energy profit outlook, stemming from soft demand during the first half of this year, we would also like to point out that large-scale investment in renewable energy is picking up in developing countries, according to the report from the United Nations Environment Program published in mid-July. China has been the single-biggest contributor, with its financial new investment in renewable energy rocketing from USD 14.2bn in 2007 to USD 48.9bn in 2010.
While the equity markets remain jittery and sentiment fragile, all the positive long-term fundamentals mentioned above simply are not reflected in share price performance."
