We think renewables valuations are very compelling, particularly as we near the end of this interest rate tightening cycle. Valuations across wind and solar names appear attractive, with most European companies trading at or near replacement value. In addition, recent take-private transactions in the mergers and acquisitions (M&A) market highlight discounted valuations in public markets. We’ve seen full companies being taken private at nearly 50% premiums over listed prices, or individual assets being bought at up to 2x the implied value of the assets.

Solar costs keep coming down, with panel prices cheaper than ever. Overcapacity in China and restrictions related to Chinese exports to the U.S. have led to a flooding of the market with excess panels. We believe this has made solar energy the most competitive and most affordable energy source today.

The renewables and sustainable infrastructure universe is not homogeneous. It is not solely comprised of power generators, wind turbines and solar panels, for instance. Waste management companies tied to the concept of a circular economy are also vital to a transition toward a global economy that minimizes raw materials use and the creation of pollution and waste. We believe these companies can offer diversification to a renewables portfolio, acting as a resilient, less correlated complement to pure-play renewables more negatively impacted by inflation and rates. In addition, we believe tremendous opportunities exist among the best renewables operators in general that are positioning themselves for the other side of the current rate environment.

The diversity of the listed renewables and sustainable infrastructure universe allows active managers to quickly pivot toward the most compelling opportunities as market conditions change. But at their core, these companies share underlying characteristics that make infrastructure attractive: monopolistic business models, with long-term contracts that produce steady and growing cash flows.

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INDEX DEFINITIONS

The FTSE Global Core Infrastructure 50/50 Index gives participants an industry-defined interpretation of infrastructure and adjusts the exposure to certain infrastructure subsectors. The constituent weights are adjusted as part of the semi-annual review according to three broad industry sectors: 50% utilities; 30% transportation, including capping of 7.5% for railroads/railways; and a 20% mix of other sectors, including pipelines, satellites and telecommunication towers. Company weights within each group are adjusted in proportion to their investable market capitalization.

The S&P 500® Utilities Index comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.

The S&P Global Clean Energy Index is designed to measure the performance of companies in global clean energy-related businesses from both developed and emerging markets, with a target constituent count of 100.