New dawn for investment in solar power?

Avoiding the oil sector this past year has proved a good decision for Sophie Horsfall, manager of the F&C Stewardship International Fund, triggering a reassessment of the outlook for prospects in the alternative energy sector. Whilst Horsfall remains positive on the outlook for solar and wind power on a longer-term basis, she is mindful that from an investment perspective, these areas can be volatile, with the sector having been through turbulent times in part as a direct result of the global financial crisis.

"For now, I believe the negative news flow surrounding the oil industry could mean attention refocuses on cleaner technologies and the need to be less dependent on oil. With this is mind, I have been rebuilding our exposure to select solar energy stocks - an area we have avoided for much of the last year," commented Horsfall.

Horsfall established small positions in SMA Solar and STR Holdings over the summer, commenting: "These are two companies in which we have a high level of conviction. Both companies make components which account for a small proportion of the total costs of a solar power system. This makes them less vulnerable to margin pressure and better placed to profit from increased end demand for cleaner energy."

The decision to re-enter solar was driven by various factors but attractive valuations were key. Volatility remains likely going forward, but with improving visibility and the likelihood that risks can be mitigated by investing in quality, volume plays with valuation support, Horsfall believed the time was right.

Horsfall concluded: "Given the uncertain economic returns and general malaise in financial markets, funding for solar installations had been difficult. However, in Germany the funding environment for solar installations has vastly improved and is now slowly improving elsewhere. Within the F&C Stewardship International Fund, solar is a long-term structural theme and we are seeing attractive opportunities arise across economic cycles."