How investors can capitalize on resource optimization
As in any sector, investors need to keep risks in mind. In the markets where some NEI Environmental Leaders Fund holdings operate, leadership is concentrated in the hands of a few players, some with very high valuations. There is the potential for volatility if a company fails to execute as expected, doesn’t meet growth expectations, or reduces CapEx (capital expenditure).
To protect investors against these risks, Lilloy says diversification is critical. He also draws attention to the value of a “picks and shovels” strategy that, for example, provides exposure to suppliers to data centres rather than the data centre operators themselves.
“Resource optimization matters because scarcity is now a structural economic issue,” he says. “The companies that provide solutions to resource-intensity optimization often become essential suppliers. They tend to have strong pricing power [and] very strong positions. Therefore, by having exposure to this strategy, investors can benefit from this durable demand, from the visible economics of this business model, and, ultimately, from the long-term compounding potential.”
This article was provided by NEI Investments
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