Q1 2014 GEOS Quarterly Review – Our Solution

After speaking with investors over the course of the quarter from family offices, foundations and endowments as well as registered investment advisors, the oft-expressed challenge is where to invest for growth today. Conversations centered on how to allocate to growth in light of anticipated inflationary pressures, as well as current equity market valuations. There were also multiple questions regarding possible solutions to pressures and conversations regarding fossil fuel divestment (FFD). We strongly believe the Essex Global Environmental Opportunities Strategy (GEOS) to be a solution for all of these challenges.

We are money managers solving the fossil fuel divestment conundrum by investing in technologies that will accelerate the move from fossil fuels, to new energy and resource efficiency technologies. We believe GEOS is a solution that should appeal to multiple stakeholders, from trustees and fiduciaries to the divestment movement, as we seek to provide capital appreciation, while also investing in technologies that can move companies and economies to a cleaner world. GEOS is a solution for FFD or reinvestment, offering broad opportunities across nine environmental themes, while lessening carbon risk. We have been managing GEOS for almost five years, after four years of research development, and strongly believe that clean tech can mitigate investment risks such as stranded carbon.

Equally important, the themes, industries and companies represented by GEOS offer strong, long-term growth. The multiple, related and converging challenges such as non-OECD economic growth and global climate change have created the greatest social challenges of our time. These challenges are social and economic, and thus have direct implications for investors. These risks have, and will continue to be reflected in investment portfolios. GEOS is an opportunistic solution, as these risks are countered by varied clean technologies that enable resource efficiency and distributed energy. GEOS is the nexus of environment and finance: we blend environmental technologies with companies exhibiting strong financial footing, while having great social impact. As we have frequently expressed, it takes energy to power an economy, and the more flexible we can make our energy sources, the better. While we agree with the expressed concern over stranded carbon, this issue is exacerbated by the heightened energy demand exhibited by the non-OECD, China in particular. These emerging economies are responsible for the strong advances we have seen in commodity prices since 2000, and we believe this trend will continue. We must now do more with less – that is our definition of clean technology. Clean tech will provide long-term growth for investors, as we see clean technologies such as LED, solar and smart grid technology growth extending for over 15 years. Clean tech provides ample and sustained growth, and as GEOS invests across nine themes, we have a broad universe for selection if valuations are sustained and lofty in certain industry pockets.

As we close in on our five-year record this quarter, we hold up our returns from inception to exemplify the GEOS solution. Performance-to-date has been driven by different themes at different periods. For the first quarter of 2014, renewable energy and clean tech and efficiency added the most value, with solar and LED lighting continued additive. GEOS also had strong performance from power technology, with
distributed-energy company Capstone Turbine experiencing strong order growth. LED and solar are great examples of technologies that have been experiencing “Clean Tech 2.0 tipping points”, given strong adoption rates from companies seeking to lessen their business risks by implementing energy efficiency and distributed energy programs. These tipping points are purely due to strong economics in the form of high return on invested capital (ROIC). GEOS exercises the same investment philosophy – seeking strong returns on capital in companies developing commercially-viable technologies.

GEOS and our thematic, fundamentally-driven investment approach, provides solutions for many of today’s investment challenges.  GEOS offers investors growth and diversification while lessening carbon risk and solving global and social challenges.