When it comes to climate change, $265.1 million Delaware Climate Solutions Fund (IEYAX) puts its shareholders' money where their goals are.
The fund says it will invest only in companies that seek to reduce, displace or "sequester" — actually return to the ground — greenhouse gas emissions or invest in companies that facilitate the reduction of GHG for others.
And the fund says it expects this new focus to have zero negative impact on investment performance.
The fund adopted its new focus on July 29, switching from being a conventional energy sector fund to its new approach that aims to dampen climate change. "Some of our holdings have changed," said Samuel Halpert, who manages the fund with Geoffrey King, Barry Gladstein and Barry Klein. "We feel strongly that over a normal time frame, the return prospects (for old as well as new names) will be as good as they were previously."
The fund was up 40.28% this year vs. -17.23% for the S&P 500, going into Tuesday.
Climate Change
But the fund's prior focus on energy has a downside risk. Over the previous three years, the fund's average annual return was 8.98% vs. 10.86% for the broad big-cap benchmark.
The fund's previous name was Delaware Ivy Energy Fund.
Halpert says the fund's new focus on the GHG aspect of dampening climate change gives it broader leeway. "We have a different mandate," he said. "Before, we were an energy fund. We had to have a certain percentage of the portfolio invested in companies engaged in extraction, production and the logistics around energy. Now we have companies involved in a wide variety of businesses, not just energy."
Halpert is head of the fund's fundamental financial analysis effort. Gladstein is head of the fund's sustainable investing analyses.
Growing investor support for companies committed to dampening climate change and to reducing greenhouse gas emissions creates a tailwind for those companies, Gladstein says. It's giving them a lot of new cash to work with. "Companies that are reducing their emissions, so far deliver above-average returns," Gladstein said. "It just makes sense."
Putting Carbon Back Into The Earth
Occidental Petroleum searches for and produces crude oil and natural gas around the world.
How does a big energy E&P firm fit into the fund's mandate for climate change dampeners and companies committed to GHG reduction? Oxy is reducing its own GHG, Gladstein says. It's also enabling other companies to cut emissions. "They're one of the leaders as far as advancing technology and putting the capital to work to reduce the GHG," Gladstein said. "They're advancing technologies to actually suck carbon emissions out of the air and put them back into the ground."
Sinking GHG back into the earth involves what Occidental Petroleum calls enhanced oil recovery. EOR is seen as an alternative to fracking, which pumps water and chemicals into the ground to push out oil and gas. "With EOR, they essentially take CO2, push it into the ground, and out comes oil," Gladstein said. "So the carbon gets sequestered (back in the ground). In today's world, that's particularly valuable."
OXY shares are up 124% this year. The stock has a 0.8% dividend yield. Earnings per share are seen growing 324% this year, according to IBD Stock Checkup.
Profit From Used Cooking Oil
Darling Ingredients turns food waste into fuel. Darling's tank trucks visit client restaurants during off hours. "They connect their hose to the restaurant," Halpert said. "They pump out used cooking oil. It smells god-awful. Then they turn those waste products into things that are more valuable."
Cooking oil recycled into diesel reduces the need for making diesel from petroleum. That can slow climate change by reducing GHG.
Through a joint venture with Valero Energy, another top-10 holding of the fund, called Diamond Green Diesel, Darling converts used cooking oil into renewable diesel fuel.
Renewable diesel does not have the drawbacks of ethanol, another renewable source of fuel. Ethanol requires lots of crop acreage, is more corrosive and more costly. "Darling's renewable diesel is good to go," Halpert said. "It is plug-and-play, meaning you can use the renewable diesel in place of (conventional) diesel. There are no constraints around it."
Darling is up 8.8% this year. EPS is seen growing 37% this year.
Barges Slow Climate Change
Arcosa is a provider of infrastructure-related products. The company was spun out from Trinity Industries in 2018.
One Arcosa business designs and fabricates concrete, lattice and tubular steel structures for transmission towers, for example. "They're also the largest barge builder in the U.S.," Halpert said. "Barges are the least carbon intensive way to transport most industrial goods."
Arcosa is also a large producer of aggregates, or construction materials, Halpert says. The company has been able to increase prices for its aggregates for about 75 years in a row, Halpert says. It has used that pricing power to acquire smaller rivals. The firm has "made an effort to go into recycled aggregates," Halpert said.
Still, sales volume of so-called green aggregates is too small to impact climate change "in a big way," the managers add.
Arcosa shares have returned 10.55% this year. The stock has a 0.3% dividend yield. EPS is seen climbing 11% this year.
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