The sharp decline in oil prices caused a selloff outside of traditional energy companies. But some of that selling—particularly in solar and water businesses—was misguided and presents an excellent buying opportunity, according to a leading natural resources and alternative energy investor.
“There isn’t really a correlation. The market got nervous and ran too far,” Ken Locklin, a director at $4.6 billion Impax Asset Management, said at an energy investing event Wednesday in Manhattan organized by the New York Hedge Fund Roundtable.
Locklin said that Impax had used the price decline as a buying opportunity. The firm added to its already large positions in water businesses, which investors sold in anticipation of beat-up energy companies slowing their hydraulic fracking, an extraction process that relies on huge volumes of water. Locklin said that related water companies actually had relatively low exposure to energy and actually focused more on industrial and municipal demand.
Impax also used the oil dip to add to its solar holdings, which sold off as the market anticipated higher use of oil as an energy source given its suddenly much-lower price. The stocks of large solar companies such as SunEdison and First Solar fell by double digits over the second half of 2014.
Locklin didn’t offer any specific company examples. But stocks recently held by Impax’s public mutual funds were American Water Works and Trina Solar.
“This is a good time generally to be working in the renewable energy … side of the house,” Locklin said. “While these macro challenges are hitting the petroleum market so hard, we’re seeing the opposite set of pressures generally supporting interest of investors in ways to diversify their energy position.”
Locklin said that solar power demand would only increase as improving technology lowers its cost.
He pointed to global government promotion of renewable energy technologies as an important long-term driver. Locklin also noted the rise of so-called distributed solar, a term for small, decentralized installations such as on the roof of a home.
Lockin said that betting on renewable energy was generally a good way to avoid trying to guess the price of oil.
“If you as an investor are trying to decide how to manage a portfolio, maybe one of the things you want to do is look for ways to shore up your energy demand where you can, with resources that aren’t dependent on fossil fuels,” Locklin said.
The Impax-advised Pax World Global Environmental Markets Fund fell 1.62 percent over the last 12 months ending Jan. 30. But it averaged returns of 9.47 percent over the last five years. Impax also manages private equity and sustainable property funds.