FORESIGHT ENVIRONMENTAL INFRASTRUCTURE: A fund built to withstand weather risks
The UK's dependence on natural resources has been put into sharp focus in recent weeks as oil prices continue to spike.
Against this, renewable energy, which looks to draw power from greener sources, seems a more urgent endeavour.
However, it can be a notoriously tricky area to invest in because of how dependent it is on the weather.
But one trust that manages to set itself apart is Foresight Environmental Infrastructure, which is built to be less exposed to these risks compared with other renewable energy trusts.
Unusually, just 38 per cent of its portfolio is invested in wind and solar – far less than other renewable energy infrastructure trusts.
Ed Mountney has been co-managing the £430 million trust since 2019 with Chris Tanner and Charlie Wright at London-based investment manager Foresight.
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It invests in environmental infrastructure, such as greenhouses and solar panels, to enable renewable energy to be generated, stored and distributed.
'We are set up to be a diversified renewable infrastructure fund, not just investing in wind and solar,' Mountney says. The trio have invested about 44 per cent of total assets in the clean energy tech of tomorrow, including biomass, controlled environment glasshouses and low-carbon transport.
The Cramlington Biomass plant in Northumberland is Foresight's largest holding at just under 10 per cent of assets. It produces renewable energy from tree tops and other forestry residues.
It has been one of the trust's most successful investments, returning 25 per cent within three years of being purchased out of administration in 2021.
Like other renewable energy infrastructure trusts, Foresight has had a difficult run over the past five years – it is down 5.5 per cent, while the average renewable trust has lost 15 per cent.
These trusts are sensitive to higher interest rates as developers need to borrow large amounts for the high upfront costs associated with building solar and wind farms. Mountney says: 'We have accepted we are in a higher for longer interest rate environment, so there will be less shock factor for investors if rates are cut once instead of twice in the next year.'
Over the past ten years, Foresight has returned 42 per cent, exceeding the average renewable energy infrastructure trust's 38 per cent.
A big attraction lies in the growing dividend stream Foresight draws from the highly cash-generative businesses it invests in, such as those in anaerobic digesters – the process whereby animal food and waste is broken down to produce biogas and biofertiliser. Wind and solar infrastructure are also strong cash generators.
By investing in a combination of income-generating assets and growth assets, the managers create a cycle where 80 per cent of the returns cover the dividend. The remaining 20 per cent can be invested in growth assets.
It has been growing dividends for ten consecutive years, since launching in 2014, and its dividend yield of 10.9 per cent is higher than the 10.5 per cent average of its peers. The trust is targeting a dividend of 7.96p per share for the year ending March 31, 2026.
There is an opportunity for bargain hunters to buy in as the trust is currently going for a huge 32 per cent discount.
If sentiment improves and the discount were to narrow, shareholders would stand to benefit.
Mountney says: 'The drive towards decarbonisation for energy security will continue, which makes renewable energy infrastructure compelling.'
Its market ticker is FGEN.
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