Following strong performances over recent years, 2022 saw a reversal of fortunes for the portfolio with the trust experiencing a fall in asset values and a negative investment return to shareholders. NAV dropped 15.3% while shares fell -7.3% after returning 19.8% the previous year, falling well behind the S&P Global Clean Energy Index return of 6.6%, although two-year returns are still ahead and remain comfortably positive. The discount fell to 12.9%.
It’s worth pointing out that the composition of the company is vastly different to that of the index benchmark, so while it is useful for comparisons, year on year returns will not always match, as we have seen over the past few years. The company’s portfolio is currently more focused on the UK and Europe, whereas the index has a higher weighting to North America. Management noted that exposure to China, and Finnish hydro and nuclear investments dragged on returns through 2022 due to the geopolitical instability.
Chairman Gillian Nott had this to say on the outlook:
”The macro-economic environment has been against the company over the past year, and equity markets have been weak. While developed market interest rates are expected to reach their peaks in 2023, financial markets are likely to remain turbulent as historic monetary stimulus is withdrawn.
”China faces a difficult situation as Covid-19 runs through the country. As a result, its government could see its domestic popularity fall, and it may be tempted into ill-advised actions both at home and abroad, which have the potential to destabilise its economy and the region. Further, it is at this stage difficult to envisage a near term resolution to the conflict in Ukraine.
”However, despite this troubling backdrop, the underlying earnings performance of the majority of the portfolio’s holdings has been strong, and we expect this to continue in the short to medium term. We expect European power prices should remain elevated as the EU withdraws from its dependence on Russian natural gas.
”The implementation of European windfall taxes has been a notable headwind over the year. However, with the relevant taxes now published and in operation, the market again hopefully has some clarity. Generally speaking, windfall taxes have been set at a level which, while providing some compensation to governments that can be used to subsidise tariffs, still allow generators to make good returns from the high pricing environment.
”Over the long term, the issues of natural gas supply and high commodity prices further reinforce the benefits of moving to renewable energy. In addition to being much more environmentally friendly than traditional power sources, renewables have the advantage of generating electricity closer to where it is consumed, together with the potential for a less volatile pricing environment. The board believes that the company’s investment policy remains very relevant and is one from which attractive long term investment returns can continue to be made.”
PMGR : Premier Miton Global Renewables falls back to earth