Vontobel Conviction Equities Boutique
Concentrated and fundamentally driven high-conviction equity portfolios managed by four teams specialized in emerging markets, impact investing, thematic investing, and Switzerland.
President Biden's “American Jobs Plan” proposes a huge infrastructure-spending bill, underscoring the Biden administration's commitment to pursuing a transition to a low-carbon economy and improving the overall infrastructure quality after decades of disinvestment in critical areas like roads, bridges, water systems and the electric grid. However, the plan goes beyond that as the pandemic has exposed the vulnerability of employment, with over 9 billion jobs lost, and the fragility of the healthcare system, which threatens the economic stability for many American families. Investing in the future is certainly a priority for Biden.
The plan, which is worth more than two trillion dollars and equivalent to 10% of the country's current GDP, now faces a tough debate in Congress, where funding from higher corporate and other taxes will be met with Republican resistance. Therefore, the proposed numbers are mere starting points. This implies that much can change before the legislation is passed, which will need the full support of the Democratic Party.
The proposal includes a 10-year extension to the renewables tax credits and a potential step-up in power networks. This bodes well for wind and solar businesses, and further details point to financial support for developments in power storage, carbon capture and sequestration, fuel cells and Electric Vehicles infrastructure. Biden's proposal also includes support for communities most vulnerable to climate-related disaster. Resilience efforts focus on the electric grid, food systems, urban infrastructure, community health and hospitals, and transportation assets. Investments would improve energy-efficiency in public schools, childcare facilities, hospitals and federal buildings. Moreover, the proposal calls for upgrades, modernization, contaminant remediation and infrastructure across the broader water system. Biden’s plan on water includes tax and other incentives for investment looking to reduce lead pipe exposure in many communities.
Biden’s administration plan goes beyond addressing old infrastructure: the plan intends to offer inclusive growth and social equity to disadvantaged communities by creating new jobs and investing in new technologies and education. The spending will take place over an eight-year period, which could foster strong GDP growth for several years. Biden's ultimate goal is to ensure that the US remains a global economic leader for decades to come. To take advantage of the arising opportunities, investors need to look beyond the obvious wind and solar solutions and consider opportunities in areas like, clean energy infrastructure, resource efficient industries, low emission transportation, building technologies and clean water. Company examples are Hannon Armstrong, Itron, Trane Technologies and Quanta Services to name some.
Hannon Armstrong, finances climate change projects in areas such as wind and solar power generation as well as energy storage. Thanks to its access to funding, the company is a typical enabler not only of public climate and energy efficiency initiatives, but also of rooftop solar installations for individual house owners.
Itron, a US technology company, which enables utilities and cities to safely, securely and reliably deliver critical infrastructure solutions to communities in the US and more than 100 countries globally. The portfolio of smart networks, software and services helps to effectively managing electricity and water resources.
Trane Technologies manufactures energy efficient equipment for heating, cooling and air cleaning in buildings, but also for industrial fluid handling and cold supply chain solutions for food and pharmaceutical products. As such, the company enables energy savings while providing better indoor conditions and reduces waste by providing climate-controlled solutions to move refrigerated food, medicines and other perishables around the world. Ever-stricter regulation request refrigerants with low "global warming potential", being safe and cost effective, while equipment needs to comply with today’s highest energy efficiency standards. While regulation often help to trigger the required investment decision, we believe that the cost benefits will motivate Trane’s customers to change even without a government-induced kick.
Quanta Services constructs power, communication and energy network infrastructure and provides related maintenance services as well as repair work after natural hazards, mostly in the US. Global warming causes more frequent and heavier natural hazards, which not only requires fast repair work but also large investments to mitigate climate change risks.
The United States’ revived ambition to fight climate change and contribute to a greener economy helps to achieve an alignment with China and Europe with respect to climate ambitions. While some policy programs are still based on subsidies, the larger, more effective programs actually do not require much government money. They rather focus on energy efficiency requirements and on fostering a more sustainable energy supply. Increasingly, technological advancements have reached an eminent competitive level so that incumbents must adapt or disappear. Over the next few decades, many interesting opportunities for long-term investors in these areas can be expected.