Client Spotlight: Cambridge Investments: Harnessing the Power of Alternative Energy

Client Spotlight

Cambridge Investments: Harnessing the Power of Alternative Energy

Founded in 1981 by renowned energy investor John Tozzi, Cambridge Investments has one of the  longest performance records in the top 1 percent of all managers since inception. Today, with interest in alternative energy, electric vehicles and related companies at an all-time high, Tozzi’s firm is well-positioned to reap impressive rewards for its investors with a strong focus on the alternative energy sector.

Clearly, in today’s market, the time is right for investing in alternative energy. During the past five decades the Conventional Fossil Fuel Energy Sector has been marked by the “Heights of Euphoria” and the “Depths of Despair,” Tozzi says. Profiting in the sector required a combination of macro-economic understanding of the sector’s dynamics and trends, bottom-up fundamental research of individual companies and securities, and the ability to moderate the sector’s inherent volatility. The promise of clean technology, creating energy from renewable resources, has lured investors unsuccessfully to this sector. However, after years of underperformance, the Alternative Energy Sector is now in the early stages of commercialization and a significant period of outperformance has commenced.

“In our view, alternative renewable energy markets will continue to grow regardless of federal policy, particularly given that alternative energy is in the process of reaching cost parity with conventional fossil fuel. Until a few years ago, alternative energy prices were significantly higher than fossil fuel prices. Users would seek alternatives when fossil-fuel prices rallied, switching back when prices fell. While the cheapest fossil-fuel generation still outpaces clean energy, in some areas of abundant sun and wind, even unsubsidized new-generation wind and solar prices are competitive,” Tozzi said.

As further evidence of the importance of alternative energy, Tozzi points to the fact that demand for oil consumed for transportation is already declining in certain markets and segments. For

example, electric buses will displace about 235,000 barrels of oil demand a day by the end of this year. Add in the smaller displacement today from EVs, and there’s already some 280,000 barrels a day displaced. Even the oil majors are taking alternative energy seriously.

“Alternatives have become a global business. Even Warren Buffet appears to have expressed his positive opinion of the Alternative Energy Sector through his acquiring a 25% stake in Chinese battery/EV company BYD and his $9.7 billion investment in utility power generator Dominion Energy. Investors are at the early stage of recognizing the inevitable growth of the Electric Vehicle (EV) market with global penetration at less than 3%. We believe that the EV industry will grow at a 20% CAGR through 2040,” Tozzi said.

From a strategy standpoint, Cambridge made the timely decision to eliminate all of its conventional carbon footprint Energy Equities and move to a solely Alternative & Renewable Energy portfolio by the end of 2018. The firm actively tracks a universe of over 150 companies representing $3 trillion in enterprise value across the energy production, infrastructure/service, and alternative energy subsectors. Utilizing an economic and technical overview, Cambridge focuses on specific companies that have the potential to outperform the overall S&P 500 Industrials on a revenue, cash flow and earnings basis, and yet are unexploited by the marketplace.