Energy funds continue to be Lansdowne Partners’ top performers this year.
The Lansdowne Energy Dynamics Fund’s non-voting shares gained 7.2 percent in the third quarter and are now up more than 20 percent for the year. The voting shares were up 6.7 percent and 18.5 percent, respectively, according to its third-quarter letter obtained by Institutional Investor.
The Lansdowne Clean Energy Fund’s non-restricted A class, launched in October 2017, surged 17.9 percent in the third quarter and was up 23.8 percent for the year, according to a separate letter. Two other classes of Clean Energy priced in euros and British pounds were up 13.5 percent and 13.6 percent, respectively, in the third quarter and are both up around 19 percent for the year.
Although two of the firm’s more widely held funds were also profitable in the third quarter, they both remain solidly in the red for the year. Lansdowne European Absolute Opportunities Fund, for example, was up a mere 3.3 percent for the quarter, trimming its loss for the year to 7 percent.
Lansdowne Developed Markets Long Only Fund rose 4.8 percent in the quarter but is still down nearly 23 percent for the year.
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London-based Lansdowne declined to comment.
As of October, the firm planned to shut down its Lansdowne Developed Markets Fund, its main long-short fund and directed investors to switch to one of two long-only offerings: the Lansdowne Developed Markets Long Only Fund and LDM Opportunities Fund, a newly launched, actively managed, early-stage investment vehicle.
Finding opportunities for the short book “either in terms of generating specific value or as a hedging offset to the long investments” has become much more difficult, the firm said at the time.
Meanwhile, on July 1 the Lansdowne Greater China Fund ceased short-selling to become long-only. It is headed by Yang Wu and Xing Zhao. The fund rose 5.65 percent in the third quarter, lagging the MSCI China All Share Net Total Return USD Index, which gained 13.1 percent for the quarter, according to the firm’s third-quarter letter.
Paul Ruddock and Steven Heinz founded Lansdowne Partners in 1998 as a limited partnership. Ruddock retired in 2013 and Heinz followed the next year. In 2014 the firm converted from a limited partnership to an LLP. Senior partner Peter Davies leads the developed markets strategy.
As of March 31, 2020, Lansdowne managed about $10.2 billion, according to a U.S. regulatory filing.
The Energy Dynamics fund, run by a team of people, has been up every month this year, according to its letter. More than half of its third-quarter gains came from its renewables book — one of five strategies it breaks out — driven by Vestas, a maker of wind turbines.
It was most hurt by its short position in electric car maker Tesla.
Heading into the fourth quarter, electromobility remained the largest theme with a 31 percent gross exposure, according to the letter. Its thesis for the strategy: Adoption of cleaner public and private transport is gathering pace, impacting demand for cars, trains, and trucks. “This is a highly visible part of the energy transition, and we want to be invested in the key players,” Lansdowne elaborated. “Some of them are large with established technologies, while others are small and developing nascent technologies.” Its net exposure is 9.5 percent.
The fund has a nearly 24 percent gross exposure — and 19.5 percent net exposure — to what it calls “energy efficiency and electrification” and a nearly 22 percent gross exposure and 9.7 percent net exposure to downstream renewables.
Renewables and industrials drove Clean Energy Fund’s third-quarter performance, primarily. Vestas and Carrier Global, a maker of heating, ventilating, and air conditioning (HVAC) systems, were the top performers.
From a macro standpoint, the Energy Dynamics fund is running with what it describes as a lower risk profile than normal due to its lack of strong conviction for the market’s future direction. “On the one hand, equities look distinctly cheap versus most other asset classes, in particular bonds,” the clients of both energy funds were told in their respective letters. “However, this is not because of attractive equity multiples, but rather bonds are extremely expensive.”
“Our main exposures remain where we have the highest conviction,” the letters added. “The energy transition is a multi-decade trend, unlikely to be stopped by external events; only its speed can be altered. In fact, so far this year, governments, societies, and companies are supporting the deployment of renewable power generation, and the decarbonization of transports. At the other end of the spectrum, this creates a real headache for fossil fuel producers. Investors are simply ignoring them, encouraged by ESG embracement, and potentially creating some derisory valuations.”
The Developed Markets Long fund has a “broad pro-cyclical, somewhat more inflationary tilt to the portfolio,” according to its letter, signed by Davies and Jonathon Regis. It has allocated about 35 percent of the portfolio to assets in Europe, 34 percent to the U.K. and Ireland, and a quarter to the U.S, according to its client letter.
“We continue to feel that at some stage there will be a very sharp economic recovery post-Covid-19 and that some fundamental shifts in investment conditions will emerge as governments run structural deficits to fund spending in response to lower bond yields,” the firm said. “We also continue to note that opportunities within the portfolio represent changing specific industrial growth profiles or corporate performance at least as much as ones reliant on general market rotation.”
