Global trends to watch: health care and the energy grid
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Half of all investments into future energy infrastructure could go to expanding, strengthening and preparing the global electrical grid for the influx of clean electricity, according to Morten Springborg of C WorldWide Asset Management.
The Copenhagen-based global thematic specialist said the world has turned its focus to the development of more efficient sources of energy. With the transition from fossil fuels to solar panels and wind turbines comes the need to upgrade electrical grids.
“We think that maybe 50% of all investments going into energy transition will go to the electric grid,” he said. “And this particular area of growth is going to be very, very secure, because it typically is a regulated utility model whereby you get a regulated allowable return in excess of your cost of capital. If you can do that for the next 30 or 40 years and get a positive spread of 2% or 3%, that is [a] valuable business to be in.”
With that in mind, he has advocated for investments in companies like Siemens AG, a technology company based in Germany; NextEra Energy Inc., a wind and solar producer based in Florida; and Iberdrola, an electric utility company based in Spain.
Among them, Iberdrola stands out, Springborg said, with significant growth over the past 20 years and exposure not only to Spain but also to the U.K., the U.S. and countries in Latin America.
“We believe that Iberdrola is a company that has the capability of growing high single-digit, low double-digit for a few decades, as the world transitions to a more sustainable and renewable energy system,” he said.
Springborg has a strong preference for what he calls “future green super-major utility companies” — especially those with diverse geographical exposure that can handle multiple and sometimes conflicting regulations at the regional level.
“If you are [a] global super-major in green electricity generation, you can just reallocate your capital to other geographies where you would see better remuneration,” he said.
He said many politicians and investors underestimate how much capital will be required to bolster an electrical grid that can accommodate vast amounts of renewable energy.
As a global thematic specialist, Springborg focuses on trends that are generational in nature, with themes that slip in and out of prominence during the run of the trend. The trick is finding exposures to stocks that offer sustainable growth, high returns on invested capital and a clear picture to long-term profitability.
“Many times, you can actually find some attractive long-term themes but it’s difficult to get the exposure via one single or group of equities, either because it is not really possible for us to go into them or because they don’t live up to our investment requirements,” he explained.
When he does find niches where industries are maturing and consolidating, he looks for promising market leaders, such as Iberdrola.
“They typically have a higher ability to invest in for future growth than their competitors, and that also increases the most over time,” he said. “They also typically have higher return on invested capital than their competitors.”
He also likes Novo Nordisk of Denmark, a pharmaceutical firm that is making inroads in treating what Springborg sees as “an unstoppable thematic development”: obesity.
“If you go back 30 or 40 years ago, the number of obese people in the world was maybe around 100 million. Today we have probably crossed 700 million people that are obese,” he said. “It has extended now so that close to 50% of the U.S. population and also [of] other countries like Mexico could now be diagnosed as obese. And that is putting a tremendous strain on public health systems across the world.”
The real concerns with obesity are the co-morbidities, including diabetes, cardiovascular diseases, hypertension, cancer and muscular issues, Springborg said.
Novo Nordisk has a leading market position in both insulin and so-called “GLP-1” pharmaceuticals that have been effective in stabilizing blood sugar in diabetics.
According to Springborg, the semaglutide molecule at the heart of Novo Nordisk’s GLP-1 shows great promise in treating chronic obesity. Unlike insulin, which tends to lead to weight gain in diabetics, semaglutide curbs appetite, leading to up to 25% weight loss — the kind of result normally only achievable through stomach surgery.
“Novo Nordisk, within a few years, will have an oral GLP-1 for the treatment of obesity,” he predicted. “And that is a game changer because that has never, ever been done before.”
Springborg describes Novo Nordisk and Iberdrola as companies on the leading edge of innovation.
“There are so many challenges, and that leads to many tremendous opportunities to address these challenges. And I think the world is doing it. It is doing it in diabetes, it is doing it in energy transition,” he said. “And eventually these problems will be solved because we have [the] ingenuity to do it.”
This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.
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