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Ciaran Mallon, Fund Manager
America can demonstrate impressive commitment when it throws itself into something. Take President Biden’s supersize climate change plans.
Three acts in particular – the Inflation Reduction Act, the Chips Act and the Bipartisan Infrastructure Law – look set to cement (in a low-carbon way) Biden’s name in history.
The US has got the renewable energy bug and is using hundreds of billions of dollars in grants and tax breaks to unleash a torrent of entrepreneurial spirit and intellectual capital. I think the results will be quite something to see in the years ahead.
It is rare for a president to succeed in pushing through such dramatic legislation. Perhaps what has helped Biden has been the way he has focused spending on benefiting the US, creating jobs by reshoring manufacturing and reducing dependence on China and other nations. The beneficiaries of this money should be American companies and workers.
It may come as a surprise to learn, then, that several UK-listed companies within our portfolio look set to benefit, too.
National Grid: Around 40% of National Grid’s assets are in the US, distributing electricity and gas across New York and Massachusetts, employing 17,000 staff and serving 20 million people. Through National Grid Ventures (NGV) it operates and invests in large energy projects, technologies and partnerships to help accelerate the transition to clean energy in the US and also across the UK and Europe. The business is working, as part of a joint venture, to connect a wind farm to the onshore transmission system which will deliver offshore wind capacity for Rhode Island and Connecticut. In partnership with other well-known businesses, it is also jointly bidding for new wind farm projects in the Northeast US. In addition, it is building electric vehicle charging networks and also investing in solar, clean hydrogen and battery storage projects. On both sides of the Atlantic we are going to need more robust networks for dealing with energy transition as we increasingly come to rely on electricity.
Drax: Drax offers a useful alternative renewable energy focus with its hydro-electric plants and sustainable biomass power generation units, which used to be coal-fired. The company has a global bioenergy supply business operating from 18 sites in the US and Canada, producing compressed wood pellets for its own plants and customers in Europe and Asia from sustainably managed forests in North America. These pellets are from low-grade wood produced as a by-product of the production of higher-value lumber and furniture. The company has faced criticism, but we believe Drax is sourcing its biomass from sustainably managed forests – a renewable activity that uses resources sensibly and is vastly preferable to burning coal. It is aiming to be carbon negative by 2030 through carbon capture and storage. There is no single solution in the transition to a low-carbon world, and we believe biomass has a part to play – here and in the US.
Ashtead: The legislation introduced under the Biden administration will lead to a prodigious amount of construction. Operating under the brand Sunbelt Rentals, Ashtead is an international equipment rental company. It rents a vast range of construction and industrial equipment, like forklift trucks, earth-moving diggers, cherry-pickers, pumps, pneumatic drills, power units and portable accommodation for workers. It aims to be a one-stop shop and has over a thousand stores across the US. It is the second-largest equipment rental business in North America.
Indirect winners
Even companies that have not previously had operations in the US may still benefit. Take SSE – formerly Scottish and Southern Electric. This is one of the world's leading builders and operators of wind farms – an experience it has developed in the North Sea, which has an unusually shallow bed. Dogger Bank, off the Northeast coast, connected Britain to Europe during the Ice Age will be the site of a new windfarm which, when fully complete in 2026, will be capable of powering 6 million British homes. SSE is examining global opportunities, and North America looks like an obvious market for its valuable expertise. The company recently opened an office in Boston and is assessing potential participation in renewable wind projects.
Compass Group: At stadiums, museums, corporate cafes, hospitals or schools, most of us will at some time have eaten food produced by the Compass Group. It is a huge contract food service and hospitality business. More than half of its footprint is in the US, where it operates many different brands, depending on location. It should benefit from supporting construction projects – feeding the workers building the new America.
Global Britain
Although the portfolio is invested predominantly in UK listed companies many of these companies are multinational businesses with exposure to North American markets and could potentially benefit either directly or indirectly from the investment the US government is planning. Added to this is the fact that Europe is now talking about creating similar initiatives. Some of the companies I have mentioned here potentially look well placed to benefit from that, too.
It is a reminder that when you invest in a UK investment trust like ours you are not making a call on the direction of the UK economy – many of the best companies listed in the UK are multinational and this makes them an exciting way to benefit from tomorrow’s global growth.
Want to know more?
Ciaran Mallon is a Fund Manager within the Henley-based UK Equities team and co-manages the UK Equity portfolio within the Invesco Select Trust plc with fund manager James Goldstone. Click below to learn more about the investment trust.
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Invesco Select Trust plc UK Equity Share Portfolio
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