Asia hedge funds pare bets on green energy after 2020 surge

Hong Kong

ASIA hedge funds that rode a green investing wave for double-digit returns last year are starting to reduce bets on the sector given the lofty valuations.

Apeiron Capital has cut Tesla to a small position after the electric vehicle (EV) maker's eight-fold surge sparked a 98 per cent return for the US$400 million hedge fund in 2020, said founder Yao Wanyi.

York Capital Management also trimmed investments in EV, battery and solar glass makers, said Mark He, co-portfolio manager of its US$3.4 billion Asia funds.

"Clean energy remains one of the most important investment themes for years to come, it's just that it ran a bit too much last year," he said, adding the firm may buy the dips later.

EV makers and their suppliers were among last year's star stock performers, as the new vehicles start to win over consumers with better technology and lower prices.

Meanwhile, cleaner sources of energy, from solar to nuclear, were bolstered by pledges from China and other countries to curb emissions over the next few decades.

Those investments, together with shifting consumer behaviour amid the pandemic, helped Asia managers beat peers in the best year for global hedge funds in at least seven years.

Though many Asia hedge fund managers still like the long-term outlook for sustainable investments, valuations look stretched. Apeiron began to "actively" cut its Tesla holdings for the first time this year, after buying convertible bonds and shares in 2019, when the market was divided on the company.

Tesla's stock price has tumbled 22 per cent since a Jan 25 high, as rising global bond yields compounded concerns about runaway stock valuations. Contemporary Amperex Technology (CATL) has lost 14 per cent since Jan 8, after the Tesla battery supplier more than tripled in the last 14 months.

"This valuation, even though we are a long-term believer, has baked in a lot of optionality other than the automobile business," Ms Yao said, referring to Tesla.

Her Apeiron team has instead identified parts suppliers with large global market share that can gain from the "multi-decade" EV trend that is just beginning, she added, declining to identify them.

LyGH Capital, a Singapore-based firm with about 40 per cent of its investments in clean energy, last year boosted holdings of EV parts suppliers where competition is less intense, said Grace Lu, chief investment officer of the company overseeing US$500 million. More than two-thirds of the 7.5 per cent January return for its hedge fund came from themes ranging from EVs to solar power, adding to a 32 per cent gain last year, she added.

Her top picks include thermal management equipment maker Zhejiang Sanhua Intelligent Controls and CATL. She also likes lithium miners.

York Capital's Asia team added Chinese hydrogen fuel cell maker Beijing Sinohytec, even as valuation concerns prompted it to cut other clean technology holdings, including CATL.

Other hedge funds are turning to uranium as a green investment. Tribeca Investment Partners has put about a quarter of its flagship hedge fund into uranium assets, betting that prices will more than double in the coming year, Asia chief executive officer Ben Cleary said.

The company's US$100 million dedicated uranium fund has returned 55 per cent already this year, after a 195 per cent gain in 2020 on investments in the metal and in companies. Its bullish bets include US producer Energy Fuels and Australia's Boss Energy. BLOOMBERG