Join Fund Library now and get free access to personalized features to help you manage your investments.
For corporations, the missing ingredient of both the recoveries in the early 2000s and after 2008, has been meaningful capital spending, with most companies preferring the “capital-light” investment of software and smartphones. This is certain to change in the coming years.
Whether readers agree with climate change or not, it is clear that fossil fuels will be steadily replaced by renewable electricity as the globe’s dominant energy. This transformation will be enormously capital intensive (with estimates ranging from $100 trillion to $150 trillion over the next three decades) and could be comparable to the post-WWII reconstruction boom, as infrastructure, transportation networks, and technologies require vast amounts of fixed capital investment.
This is not just a domestic phenomenon either. It will be pursued globally. In fact, the China-U.S. geopolitical tensions only reinforce this trend. The experience of the United Kingdom and Germany in the late 19th and early 20th century, along with the U.S.-Soviet Cold War, suggest that big rivalries act as spurs for massive investment in technology, science, and other innovations. This time will not be different.
The global carbon transition is not a one-way bet. After years of underinvestment by fossil fuel producers and the stunning collapse of energy prices in early 2020, no one should be surprised that traditional energy prices have rebounded. Recessions have always caused supply-side withdrawals, setting the stage for price increases in the subsequent recoveries. Yet the transition to a lower carbon economy was always destined to be clunky. Shortages in China and the EU highlight the continuing need for fossil fuels despite global efforts to decarbonize.
Renewable energy will take decades to build up. The problem is that investors have been too quick to price in a nearly-utopian green future, aggressively bidding up the prices of alternative energy companies. That sets them up for future disappointments. What’s more, traditional energy companies themselves are strategically buying renewable assets. They, too, will be diversifying their asset mix from fossil fuels into renewables.
The path to a green future will be far messier than most think.
Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. The Forstrong Global Investment team contributed to this article. This article first appeared in Forstrong’s “2022 Super Trends: World in Transition” publication available on Forstrong’s Global Thinking blog. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on Twitter at @TylerMordy and @ForstrongGlobal.
Disclaimers
Content © 2022 by Forstrong Global. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.
The foregoing is for general information purposes only and is the opinion of the writer. The author and clients of Forstrong Global Asset Management may have positions in securities mentioned. Performance statistics are calculated from documented actual investment strategies as set by Forstrong’s Investment Committee and applied to its portfolios mandates, and are intended to provide an approximation of composite results for separately managed accounts. Actual performance of individual separate accounts may vary with average gross “composite” performance statistics presented here due to client-specific portfolio differences with respect to size, inflow/outflow history, and inception dates, as well as intra-day market volatilities versus daily closing prices. Performance numbers are net of total ETF expense ratios and custody fees, but before withholding taxes, transaction costs and other investment management and advisor fees. Commissions and management fees may be associated with exchange-traded funds. Please read the prospectus before investing. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
Join Fund Library now and get free access to personalized features to help you manage your investments.
Fund Library
