Cohen & Steers has introduced a new energy investment strategy, one that it’s incorporating into one of its existing mutual funds, which will in the future invest in both alternative and traditional sources of energy.
Energy is going through a transitional period as alternative options become more popular than traditional ones (like fossil fuels). But those investing in an energy thesis usually choose either old or new.
Cohen & Steers, however, says it believes the future of energy will involve both, according to Tyler Rosenlicht, a portfolio manager at the New York-based asset manager.
“We think the future of energy is going to look a little bit different than we think people think,” he said. “It’s going to include a lot of alternatives, and it’s also going to include a lot of resilience and traditional energy, and we think the investment opportunities across both of these landscapes is very interesting.”
The firm is putting that theory into practice with the Cohen & Steers Future of Energy Strategy, which will invest in both alternative and traditional energy. To pursue that new strategy, the firm has converted its Cohen & Steers MLP & Energy Opportunity Fund (MLOIX) into the Cohen & Steers Future of Energy Fund, the firm announced.
By including investments in both old and new types, the strategy avoids the drawbacks others in the industry face who invest in only one or the other, Rosenlicht explained.
Rosenlicht said, “The future of energy is both so let’s design our strategy in a way that’s allowed and purposefully getting exposure to both sectors.”
Traditional energy funds tend to be highly concentrated, he explained. Alternative energy funds are too, he added, but they are also far more volatile given the uncertainty of those markets.
The firm is looking to further differentiate the fund in the marketplace by anticipating the future of energy consumption. As other firms focus on projections of energy supply, he said, Cohen & Steers is concentrating on the forward-looking demand forecasts.
Determining how much energy the world will need depends on several factors, including population and the economy, both of which are growing. So the firm estimates that means an increase in energy demand of 1% per year for the next 20 years, Rosenlicht said.
From that perspective, it is no longer about the source, but the amount.
“Before we talk about an energy transition or displacement, we need to add 20% new energy production just to satisfy future demand in energy,” Rosenlicht said.
This investment strategy is based on the premise that the energy makeup of the economy in 10 years will be 70% traditional forms of energy and 30% alternatives. Every year, the team will reassess their 10-year energy demand and breakdown forecast and use it as a background to continue guiding the strategy, so Cohen & Steers can decide whether to be overweight in one aspect or under in another.
There are no plans to incorporate the strategy into any other investment vehicles, although the firm is open to the possibilities, Rosenlicht said. He believes that Cohen & Steers’ unique perspective on energy investing will help it stand out from competitors.
“The notion of what the energy industry is is evolving, and we think the benchmarks haven’t evolved and other funds haven’t evolved because they do this either/or thing,” he said. “We have a fundamentally driven way of how to break them down and what companies should be included, and let’s redefine the energy sector to give investors exposure to the whole thing.”