There’s been a “wake-up call,” Walewski said. Although the fund has in the meantime trimmed its exposure to defense somewhat, Walewski said he expects the sector to remain attractive. “Of course they’re not going to outperform by 100% every six months, but we still think the long-term future is bright.”
“It will take years for these companies to keep up with the demand,” he said. “The world is unsafe.”
Goldman Sachs’ basket of European stocks with exposure to defense spending, which includes Rheinmetall, Thales and BAE Systems Plc, is up 58% this year, compared with a 13% decline for the benchmark Stoxx Europe 600 Index. Meanwhile, sectors that have traditionally been ESG darlings -- such as tech -- have slumped in 2022, with the MSCI World Information Technology Index down about 23%.
“Defense is good. It’s very sustainable,” Walewski said. “We’ve just rediscovered that.”
The Sustainable Europe fund that Walewski co-manages revamped its investment approach a few years ago and now pays much closer attention to any warning signs that a company might be hit by potential governance issues. That’s after being burned by its stake in German electronic payments provider Wirecard AG, which collapsed in 2020 after becoming embroiled in an accounting fraud scandal. The company made up around 10% of Alken’s Sustainable Europe fund at one point. The asset manager has sued Wirecard.
Fossil Fuels
The fund’s embrace of energy stocks has also been a driver of returns, with the sector being the best performing subgroup in the Stoxx Europe 600 Index this year. Alken targets companies that invest a “significant part” of their capital spending on the energy transition.
“That’s the best way to be a sustainable fund,” Walewski said. He also sees hydrocarbons as an essential part of the world’s power supply for decades to come. “It’s unsustainable not to allow us to satisfy 80% of our energy needs for at least the next 10, 15 years.”
“We cannot increase the speed of renewables in the global energy mix that much,” Walewski said. “It will remain a moderate part of the global energy mix for a very long time. Not 2, 3 years -- a very long time. 20, 30 years at least.”
--With assistance from Kat Van Hoof and Michael Msika.
This article was provided by Bloomberg News.