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Sustainable energy is a great asset to manage in a diversifed portfolio
In their May 2009 issue, Popular Mechanics listed the top 10 careers for today’s economy. Of course, Popular Mechanics is geared toward scientists, engineers, do-it-yourselfers and wannabe mechanics. In this issue, titled the “Cool Tools Issue,” you’ll find other “cool” articles, including “50 Tools Every Man Needs” and a story about Jay Leno’s garage.
The reason I’m talking about Popular Mechanics in this post is the fact that six out of the 10 careers highlighted have to do with the energy industry. At FIM Group, energy is our largest holding group, because we believe that it is an area that has a promising future. Whether you’re in a developed country or a developing continent, you need energy. In the developed world we take electricity for granted, even though most of it is still produced by power plants that are more than 50 years old and is transported over a system designed before cell phones, cable TV, wind farms, nuclear and solar power, or even the TV show Survivor. Recently, our local electric co-op head spoke at our economics club about clean (new) coal power as a solution to our U.S. energy “problem” (which, in a nutshell, involves aging plants, increasing demand and no leadership), and addressed concerns regarding solutions – or ways to “fix” or manage this problem at the local, regional, national and international levels.
The energy industry seems keen on promoting coal, plus a basket approach that includes: hydro, coal, wind, coal, clean coal, new coal, nuclear, solar, bio systems, conservation, gas and more coal. But I see little future for coal and nuclear. Why not harness hydrogen power? No one wants a plant in their back yard – and the U.S. is one big back yard – so despite the logic, rationale and efficiency of harnessing atoms and safely storing spent fuel onsite, it is just a pipe dream program for people who think the world is logical and scientific. Nuclear gives job security to lobbyists and lawyers on both sides of the issue. Similarly, with coal, while no one wants a plant next door, coal has this other big problem: carbon. And carbon, as we know, has only one constituency that loves it – politicians! And politicians are okay with it because they can tax it. So the bottom line is that while coal and nuclear have obvious benefits and good economics they will continue to face many problems due to public perception and bias.
So where does this leave us? As investors, energized! Partner Jeff Lokken from our Wisconsin office recently came back from the Berkshire Hathaway meeting very excited as he discussed how Warren Buffett’s partner, Charlie Munger, described the future of energy. Munger, like Buffett, has been successful, because he realizes that where change happens, opportunity exists. Few places in our economy are more exciting than energy – energy is the stuff that makes the world go ‘round. We are broadly invested in nearly every area of energy. For example, at FIM Group, as part of our philosophy as diversified portfolio managers we own two giant energy companies (Suez and Total) through our largest holding, Pargesa, Repsol through Criteria Corporation and Husky Oil through Cheung Kong as well as others directly and indirectly.
For most smaller portfolios, our energy exposure is through closed- and open-ended trusts such as Petroleum and Resources Corporation. For larger accounts, we own the above-named investments as well as BP, Royal Dutch Shell, EDP Power of Portugal and Otter Tail Power (which we highlight in this newsletter), to name a few.
As you can see from your most recent portfolio performance updates, your investments are beginning to come to life. Much of the positive performance is attributed to our energy investments. So we agree with Popular Mechanics that certain areas of the energy world have a bright future, and we are pleased that they have highlighted them, although indirectly as employment opportunities. People want sustainable job security, and we want sustainable investment opportunities. We feel confident we have found them – priced right, with great dividends and with growth potential in the investments we have made already and will make as the future unfolds.
To learn more please visit www.FIMG.net of call 800-632-5528.
