Portfolio construction rules

Thinking — April 2021

Our portfolio construction rules manage risks and maximise potential rewards

We take great care in constructing our portfolio within a set of rules which we strongly believe manage risks and maximise potential rewards. During the month, our average position size was 3.6%, no position exceeded 7% of the portfolio or contributed more than 10% of the portfolio’s volatility, and the inter-stock correlations averaged 0.3. Further, we do not own illiquid small caps nor do we ‘trade’ in and out of positions. The latter minimises execution costs but more importantly provides scope for our long-term thesis to play out.

We construct our key investment themes using bottom-up stock selection based on fundamentals, with target allocations to our core building blocks including solar, wind, energy storage, hydrogen, electric vehicles, energy efficient technologies, renewable utilities and independent power producers, biofuels, and critical raw materials. These portfolio exposures are optimised and actively managed to ensure we are expressing our highest conviction views throughout the different stages of the world’s transformation to clean energy.

We do not expect our long-term thematic and investment approach to result in one direction returns month-by-month as the portfolio will have a correlation to equity markets. However, we strongly believe our approach will yield superior returns over the medium to long term, especially if our thesis is correct and that clean energy is a secular theme of generational magnitude.