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Fund Analysis: BGF New Energy

BGF New Energy Fund receives a Superior Qualitative Rating

Morningstar Analysts 12 November, 2010 | 0:00
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Report Release Date:
8 Jul 2010

Analyst: Jackie Beard



Morningstar Opinion


It’s no smooth ride at BGF New Energy, but the depth of expertise makes it worthwhile for those who can stomach it.


The performance record of the fund shows just how volatile returns can be in this niche sector, with gains one year of 40% and losses the next of nearly 52%. But that underpins our view that such funds should be used only by investors who truly understand what’s at stake and can take a very long-term view.


Those who do have been rewarded for their patience, but even over five years, annualised, the fund has returned just 0.36% to investors, and it has trailed its peers by 49 basis points. That figure has been weighed down by the last three years and 2008 in particular, when the credit crisis hit markets hard. This stopped project finance and diverted attention from political and regulatory reform, so it’s been a tough few years for the sector.


Indeed, when evaluating the performance of this fund, returns versus the Morningstar Sector Equity Alternative Energy peer group are strong over five years, but since inception numbers are weak due to a horrid 2002. Given how much the investible universe has changed since 2002, however, we don't put much emphasis on that year.


We think the right people are in charge here, too. Managers Robin Batchelor and Poppy Allonby have worked together at BlackRock for nearly a decade and bring consistency to their investors, which helps give us confidence. They’re part of the broader natural resources team and, although this team saw Graham Birch go on sabbatical in March 2009 and subsequently decide not to return, it’s business as usual and the impact on the energy funds in particular has been negligible. Batchelor and Allonby are supported by two energy analysts and all four undertake analysis at a macro and stock level. Further, in a sector where some houses are launching funds in a bid to ride the latest trend, BlackRock has a long-standing commitment to the space and the bulk of assets it manages adds staying power.


The team has a disciplined process that focuses on both traditional and alternative energy; they believe this helps to understand both sectors better, particularly when assessing supply capacity and potential replacements. They combine their top-down views, which incorporate a forecast price direction of commodities (rather than absolute price) with detailed analysis at the subsector level to decide their allocation among their key areas. This is then followed by rigorous stock analysis, with different valuation metrics applied to suit different companies.


Like all energy funds, this one is volatile, but the strong team and thorough process, coupled with proven longterm returns, argue in its favour. We think it should be cheaper given the scale of assets being run by the team. But there are enough positives for the fund to retain its Superior rating.


*The above returns are in EUR terms.


To learn more about the fund, please click here.

To read the summary report, please click here.

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