Stockholm (HedgeNordic) – Building on almost two decades of experience running energy market-neutral funds, Joel Etzler and Vidar Kalvoy from Coeli launched a long-biased long/short equity fund focused only on renewables at the beginning of 2023. In just a few months since its inception in February, Coeli Renewable Opportunities has advanced by 7.9 percent (USD share class) after booking a gain of 5.9 percent in June alone.
“We are pleased with the performance despite the weak performance of renewable energy stocks this year,” comments Vidar Kalvoy, one of the two portfolio managers of Coeli Renewable Opportunities. The iShares Global Clean Energy has experienced a decline of almost nine percent since the fund’s inception. “Our fund should hopefully do even better when renewable stocks start performing,” he emphasizes.
“We are pleased with the performance despite the weak performance of renewable energy stocks this year.”
Coeli Renewable Opportunities has maintained an average net market exposure of 50 percent since inception, with two-thirds of the return contribution coming from the short side. “It is not a huge surprise that the short side has worked given the weak performance of our universe,” says portfolio manager Joel Etzler. “However, our shorts have declined quite a bit more than the indices.”
“It is not a huge surprise that the short side has worked given the weak performance of our universe.”
The long/short equity fund runs with a net exposure between 40 and 80 percent to capture value creation and destruction in the renewables space. The investment process revolves around themes determined by a top-down analysis of supply and demand in various sub-sectors, complemented by a detailed bottom-up analysis to identify companies with and without competitive advantages.
Inception-to-Date and June Return Contributions
Among the fund’s investment themes, the “Solar” theme has been the largest absolute contributor, outperforming the TAN ETF, a benchmark for the solar sector, by approximately 12 percent since launch. The team’s two “Hydrogen” themes, focusing on the EU and the US, have also made notable return contributions. “The gross exposure has been smaller, and both themes have been skewed net short,” according to Kalvoy.
“We are also pleased that the short contribution was positive even in a month when the markets rallied.”
During the strong month of June, nine of the ten investment themes positively contributed to performance. The fund’s largest position, Chart Industries, broke out as expected by the team, making the largest contribution. Chart specializes in manufacturing engineering equipment for a range of clean energy industries, including liquefied natural gas, hydrogen, biogas, and carbon dioxide capture. “We are also pleased that the short contribution was positive even in a month when the markets rallied,” emphasizes Etzler.
Theme of the Decade
With the expectation that the transition to clean energy will generate more value creation than destruction in the renewable space, Coeli Renewable Opportunities, as a long-biased long/short equity vehicle is well-positioned to generate attractive risk-adjusted returns. “We still believe the energy transition is the largest investment theme of the decade,” emphasizes Etzler. “It is no longer only about fighting climate change, but as important is energy security and security of supply chains. The amount of capital that will flow to this sector is staggering. The tailwinds are really unique.”
“We still believe the energy transition is the largest investment theme of the decade.”
However, the duo believes that not all renewable energy companies will succeed, as fierce competition arises when “governments throw this amount of money at a problem.” They argue that some sub-sectors present better short opportunities than attractive longs. “There will be some significant winners in this space, but the majority of companies will likely not be good investments,” concludes Kalvoy.
“Our goal is not only to identify and invest in the winners of the energy transition, but also to find and short the companies that we call fortune seekers, looking to benefit from the generous government subsidies, but lack any sustainable competitive advantage and possess limited prospects of creating long term returns for its owners,” elaborates Etzler. “Our edge in this respect is that we have been running short books for almost 20 years and we know what to look for and how to handle the risk of shorting stocks.”