Transcription of Finance News Network Interview with Australian Ethical International Equities Portfolio Manager, Nathan Lim
Donna Sawyer: Hello I’m Donna Sawyer from the Finance News Network and joining me from Australian Ethical, is International Equities Portfolio Manager, Nathan Lim. Nathan welcome to FNN.
Nathan Lim: Thank you for having me Donna.
Donna Sawyer: Let’s start by introducing the Australian Ethical International Equities Trust. How long have you been managing the Trust and can you tell us a little bit about yourself?
Nathan Lim: I’ve been managing the Trust since August 2011. Before I joined Australian Ethical, I was in charge of the SMA accounts at Van Eyk, taking care of their small companies SMA and their ethical SMA. And before that, I was a renewable and short analyst at Sprott Asset Management in Toronto.
Donna Sawyer: So what’s the size of the Trust and how long has it been running?
Nathan Lim: The Trust is $105 million as of today. The Trust was launched originally about five years ago, but it was re-themed with a smart energy thematic back in January 2010. By smart energy, it means that we take a holistic view of energy, meaning that we look at both the supply and demand of energy. So being an Ethical Fund, you’re going to find that we’re involved in renewable stocks like wind manufacturers and solar manufacturers. But we also look at the demand side of the equation, so we look at energy efficiency, recycling and process efficiency as well.
Donna Sawyer: Can you give me an idea of the profile of the type of investor that would suit investing in the Trust?
Nathan Lim: The Trust is really appropriate for long term investors that are looking for an unhedged international exposure, to secular energetic thematics that are largely unavailable here in Australia. For example, renewable energy manufacturers and LED lighting.
Donna Sawyer: International Equities is a large universe of stocks. How do you pinpoint investment opportunities?
Nathan Lim: Well we take a top-down approach to our investment strategy. It starts off with a macroeconomic assessment followed by an energy landscape assessment, then we pick a stock. So in a practical sense, how it works is that we’ll first look at a country and assess its macro-economic conditions is either positive negative, or neutral. Once we are happy that this is an area or country we want to invest in, we then dive down into the energy landscape and then we look at five primary energy sources.
So this would be natural gas, oil, coal, nuclear and renewables – I just should interject at this point. Even though we are looking at the entire energy matrix in any given country, we still invest as per Australian Ethical’s charter. So we’ll avoid dirty technology such as coal, nuclear and oil. Once we’re comfortable with the energy policy environment or investment environment, we will then pick a stock that is leveraged to that particular thematic.
Donna Sawyer: So what have you bought recently?
Nathan Lim: We’ve been active in Japan; evanomics has clearly had a positive effect on the economy. We’ve seen employment and the PMI indicators accelerating. Also the announcement that Tokyo won the 2020 Olympics has also given some of our Japanese stocks a boost. So for example, our holding in JR-East has got a boost post the Olympic Games.
Donna Sawyer: What’s your typical holding period for a stock?
Nathan Lim: Look I’ve only been managing this Fund now for two years, but what I would suggest to you is that when the risk reward profile is no longer in favour of our investors, we’ll sell.
Donna Sawyer: There’s a lot of talk about tapering the QE program in the US. Is this a risk for the Trust?
Nathan Lim: The way I look at it is this. The S&P 500 has risen about 23 per cent since year to date. Of that, 17 per cent has come from multiple expansion; the rest has come from earnings. The whole discussion about tapering is really driving sentiment and for me, sentiment manifests in multiple expansion. So clearly there is downside risk. What I would suggest to you though is that the Fund currently has a beta of 1.05, so we’re broadly neutral against market risk right now.
Donna Sawyer: Finally, what are some of the factors that are likely to impact on your performance over the next 12 months?
Nathan Lim: We’ve got quite a few things we’re tracking right now. The first one is the European Union’s Emission Trading Scheme; they really need to find a resolution to that problem. There’re far too many credits in that system. We’re also looking for developments on what their post 2020 energy policy is going to look like. At this point in time, it seems to be leaning towards more of an energy efficiency and affordability focus, more so than has happened historically.
We’re also watching the US and how aggressive they are in expanding their LNG or natural gas export facilities. They’ve so far proved three out of 20 non-FTA LNG applications at this point in time, for about four million tonnes per annum. This has got a lot of ramifications for Australia, because the US can produce their gas at about 20 per cent cheaper than we can.
The other issues that we’re watching are in China – sorry in Japan, and their commitment to diversifying away from nuclear. At this point in time, the front running technologies seem to be natural gas and solar. But we are seeing coal consumption creeping up, which leads to another concern, or it’s something that we’re watching on a global basis. That coal consumption seems to be increasing with the shutdown of nuclear, around the world. We’re seeing coal consumption also increasing in Germany, so that’s bad for the environment and something we need to keep an eye on.
We’re also watching legislation in the US, specifically their renewable fuel standard. The current regulatory path that they have projected for the next 10 years is simply not achievable, because of the blend wall, so that needs to be resolved. And the last big issue that we’re watching is the CO2 emission reduction commitments that China and the US agreed to back in July. We just want to see how sincere they really are in meeting those objectives.
Donna Sawyer: Nathan Lim thanks for the update.
Nathan Lim: Thanks for having me.
Ends
