The inauguration of Joe Biden on 20 January is likely to deliver a big boost for the renewable energy sector and infrastructure spending in general.
When Joe Biden becomes the 46th president of the United States it will herald a major change in both the style and substance of government policy. The fact that the Democrats have taken control of the Senate, albeit with a slim majority, should enable them to get the more widely acceptable aspects of their manifesto onto the statute books.
Biden’s first priority will be to get the pandemic under control, with the next step being to help the economy back on its feet. This will probably mean additional government spending and interest rates being kept low, with the tax rises to pay for it pushed out until at least 2022.
All of this should be positive for the stock market, unless the recovery from the pandemic and huge stimulus results in a big pick-up in inflation. If this is the case then it could all turn pretty nasty.
The main beneficiary of the extra government spending is likely to be the renewable energy sector. Biden has said that he will make re-joining the Paris Agreement on climate change one of his first acts and will be pushing for a net zero target by 2050, as well as zero carbon electricity by 2035 and for buildings to be made more energy efficient.
Darius McDermott, MD of FundCalibre, says that the level of spending on low carbon and/or positive environmental policies in the Biden campaign is potentially enormous.
“The biggest beneficiaries in the US are likely to be those associated with wind farming,” says McDermott. “Caps on incentives for electric vehicles could also be removed boosting the sector and its supply chains.”
He suggests that two funds that could profit are Ninety One Global Environment and Pictet Global Environmental Opportunities. The first of these holds a concentrated portfolio of 24 stocks that are contributing to the de-carbonisation of the world economy, while the latter invests in companies operating in areas of the environmental value chain including clean energy, water, agriculture and forestry.
Biden’s $2 trillion stimulus plan to ‘build back better’ will also benefit the wider infrastructure sector. Two funds that could do well out of this are M&G Global Listed Infrastructure and First Sentier Global Listed Infrastructure.
“There has been chronic underinvestment in critical assets in the US for many years and there is urgent need for repair, modernisation and expansion. So higher infrastructure spending will have an impact on a number of areas,” explains McDermott.
The M&G fund looks for a balance of income and growth from economic, social and ‘evolving’ infrastructure. This means that investments can include anything from utilities and toll roads to health, education and civil buildings, as well as mobile towers, data centres, payment companies and royalties.
First Sentier is a recognised leader in listed infrastructure investment and they have focused the portfolio on more economically-sensitive assets, as a way of insulating it from the potential impact of rising interest rates. Just over half of the fund is invested in the US.