As the global economy transitions to a low-carbon future, green investment in renewable energy and environmentally friendly businesses, including the fast-growing electric vehicle (EV) industry, has become a megatrend that serves to shape markets.
To capture sustainable gains from the EV industry, one option is to invest in EV-related mutual funds that allow investors to diversify into various businesses such as automobile and battery manufacturers.
There are three mutual funds issued by Thai asset management firms that focus on investment in EV-related businesses. They are Asset Plus Futuristic Power Supply and Mobility Fund (ASP-POWER), United Battery and EV Technology Fund (UEV) and SCB Electric Vehicles and Future Mobility (SCBEV(A)).
MASTERFUL STRATEGY
ASP-POWER is a master fund investing in four other master funds that concentrate their investment in firms related to renewable energy or clean energy from electricity, solar, wind or waves. This investment can include other sources of energy that have high potential for growth both in the upstream and downstream supply chain, including manufacturers of lithium-ion batteries, which are an important component of EVs.
The first of these funds is BNP Paribas Energy Transition Fund, which invests in clean energy producers and companies that benefit from the transformation of the energy model.
The second is Global X Lithium & Battery Tech ETF (LIT), which invests in the stocks of lithium-ion battery manufacturers.
The third is KraneShares Electric Vehicles & Future Mobility ETF (KARS), which invests in whole vehicle and auto parts manufacturers, including technology in the automotive industry.
The fourth fund is Global X China Clean Energy ETF, which invests in Chinese firms related to clean energy.
According to Asset Plus Fund Management, ASP-POWER's biggest advantage is its focus on Chinese EV businesses that have high potential for growth thanks to the population's high purchasing power, great EV infrastructure and the government's facilitative policies.
Narongsak Plodmechai, chief executive of SCB Asset Management (SCBAM), said China will account for nearly 50% of global EV sales by 2025.
China is already the world's largest EV market with about 1.4 million EVs sold in the country in 2020, accounting for more than 40% of global EV sales.
In addition, China's urban development is designed to support the construction of a fully integrated autonomous vehicle infrastructure. By the end of 2020, China had 807,000 charging stations compared with only 97,000 in the US.
Beijing has extended the country's subsidy programme for clean energy vehicles until 2022.
UOB Asset Management's (UOBAM) UEV focuses on investment in EV-related businesses such as lithium battery manufacturers via the LIT fund.
UEV also invests in RobecoSAM Smart Mobility Equities I USD, which invests globally in companies benefitting from the electrification of transport with a long track record and high growth rates.
SCBAM's SCBEV(A) uses KARS as the master fund.
KARS is benchmarked by the Bloomberg Electric Vehicles Index, which provides exposure to companies engaged in various aspects of EV production, including lithium and copper production, lithium-ion and lead acid batteries, hydrogen fuel cell manufacturing and electric infrastructure businesses.
SPEED BUMPS
SCBEV(A) has recorded good historical returns, a low maximum drawdown and an attractive Sharpe ratio, but as a feeder fund changing the master fund has traditionally proven quite difficult.
However, according to Chayanee Juengmanon, senior research analyst at Morningstar Thailand, EV-related mutual funds issued by Thai asset management firms are quite limited in terms of variety, causing them to experience a setback from rising inflation.
She said UEV and SCBEV(A) mainly invest in foreign firms, which make them more susceptible to inflationary pressure.
"Funds related to global EV industry growth prospects are often co-invested with technology stocks, causing them to produce negative returns amid rising inflation and interest rates, so their investment portfolios have been adjusted in the short term," said Ms Chayanee.
According to Jitipol Pruksamethanan, an investment strategist at UOBAM, investment in EVs boomed about two years ago when people gained more awareness about fossil fuel consumption's impact on the climate and felt the need to switch to renewable energy.
However, as economies slowed and inflation hiked, people are focusing on more immediate issues, causing the EV trend to putter out, he said.
Investment in EVs was popular in the first half of 2021, but sentiment waned in the second half because of rising inflation and the Federal Reserve's signal it planned to raise interest rates, Mr Jitipol said.
BRIGHT PROSPECTS
Despite this setback, Ms Chayanee believes the EV market still has high growth potential as many countries are working to accelerate the mass adoption of EVs by providing subsidies and reducing taxes for EV manufacturers, while expediting the construction of EV infrastructure.
EVs already contributed roughly 10% of new car sales in China in 2021. That proportion is projected to grow by 10 percentage points this year.
Meanwhile, European nations have issued rules to stop producing cars with internal combustion engines (ICEs) by 2030, Mr Jitipol said.
He said the growth of the EV industry will depend on how thoroughly the population accepts the technology and whether they consider EVs to be more cost-efficient than regular ICE-powered vehicles.
The major obstacle is EVs' battery storage capacity and the inadequate number of charging stations. Mr Jitipol believes if developers and manufacturers can tackle these issues, more people will be interested in shifting to EVs.
Mr Narongsak of SCBAM said several countries have introduced measures to support the use of EVs, with 18 of the 20 major automakers striving to increase production of EVs to meet growing demand.
In addition to EVs, he said related industries have opportunities to grow in parallel, such as lithium battery and hydrogen fuel cell businesses, as well as those related to non-ferrous metals such as lithium and copper.
Nunmanus Piamthipmanus, chief investment officer of SCBAM, said market estimates are by 2040, EV sales will account for 55% of all new vehicle sales and more than 33% of all vehicles in use.
She said mass adoption of EVs coupled with ride-sharing platforms may result in lower costs, making EVs more competitive in the market.
"From 2015 to 2030, analysts believe global demand for lithium-ion batteries will increase by 1,829%, along with revenues from minerals such as lithium and copper, which are key components of EV batteries," said Ms Nunmanus.
