How this ethical investor is gaining energy exposure

The rising oil price is unlikely to change Australian Ethical’s view of fossil fuels but it has seen positive gains from lithium and renewable energy exposure.

Thanks to factors such as the war in Ukraine and OPEC production cuts, the price of oil and other commodities had risen sharply which had boosted the share price of resources firms.

Australian Ethical head of domestic equities, Mike Murray, said: “Inflation matters a lot but just because we are in a higher inflation rate environment, and that’s had consequences for resources and oil companies, we are not actually going to change what we do just because the oil price is higher.

“We are not going to start investing in fossil fuel companies; we are a true-to-label ethical investor.”

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However, the firm had found success with other types of energy firms including lithium firm Pilbara Minerals and renewable energy firm Contact Energy. Pilbara, which supplied lithium for electric vehicles and energy storage, had seen its share price rise 65% over the six months to 16 January.

“One of the areas that we do invest in in resources is lithium and we came across Pilbara Minerals several years ago, and we put money into that about 70 cents, it promptly fell to 15 cents so we're no strangers to volatility until it was currently trading over $4. So that's an example of a company that really outperformed our expectations in that space.”

He highlighted Contact Energy as an energy firm which was yet to reach its potential, its share price had risen 4% over the past six months.

“One of the companies we like that hasn’t benefitted to the extent it should have from higher energy prices is Contact Energy. Based in New Zealand, we like it because New Zealand has about 85% renewable power and will probably go up to 90% or 95% and they are a major player in geothermal and hydro-electric power.

“You can buy that company today for about 12 times EBITDA which we think is reasonable for that sort of asset, it’s quite defensive and gives you a dividend yield of about 4.5% and we think that will grow to about 5%, giving you a total return of around 10%.”