Oaktree, the $160 billion asset manager co-founded by Howard Marks, releases a number of letters to their investors and clients each quarter. With the second quarter of 2022 just finished, they have released ‘The Roundup’ featuring snippets from these letters.
This quarter has been tough, and the roundup makes that clear with its opening sentence, “The current market turmoil highlights a fundamental truth about investing: It’s not supposed to be easy.” But the times that are the most difficult also create the greatest opportunities. And in this roundup they share insights from their team on finding value in tough markets, the attractiveness of unloved assets, and some unconventional strategies to take advantage of today’s most exciting trends – including logistics and green energy.
In their letter on green energy, the snippet focuses on the amount of investment being made in the space. $755 billion in 2021, up from $595 billion in 2020, and up from $247 billion in 2012. This is a structural and long-term tailwind for the green energy sector. Yet, Oaktree suggest, that investors are focusing on an incredibly narrow band of companies in this space – solar and wind generation, electric vehicles and grid battery storage. They suggest there are plenty of other parts in the electricity value chain that need to be upgraded but are not the focus of investors at the moment – substation equipment, overhead conductors, new transmission lines, and distribution equipment such as transformers.
These areas may be more attractive because they are not tied to the success of one type of technology (wind v solar v geothermal for example) or one company (Tesla v Nio v Volkswagen). Instead, “By looking beyond the most crowded investment areas, investors may be able to identify opportunities in which upside potential isn’t tied to the success of any particular technology but is instead rooted in the momentum of the global energy transition itself.”
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