FRANKFURT There is still cash to be reaped from beaten renewable energy stocks, as governments will continue to pump cash into the sector, even after large subsidy cuts, a fund manager at Deutsche Bank asset management arm DWS told Reuters.
"In our view, the renewable story remains intact, which is why 43 percent of our portfolio is invested in solar and wind. And we see further upside here," Nicolas Huber, manager of the DWS Invest New Resources fund, said in an interview on Friday.
He added that China and the United States will be the growth drivers for wind and solar as both countries intensified spending in the industry, despite a weak outcome at the climate change summit in Copenhagen, Denmark, last year.
Solar stocks, once a cash cow for investors around the world, have been falling ahead of incentive cuts in Germany, the world largest solar market, that affect above all domestic stocks.
The OekoDAX, featuring Germany's largest renewable companies is down more than 13 percent this year, underperforming the FTSE clean tech index of the world's largest renewable stocks, which is up 6.1 percent.
"But we also think that the impact of planned reduction in feed-in tariffs in Germany will not be as bad as feared by the market," Huber, whose DWS Invest New Resources Fund is up 1.2 percent this year, said.
Totaling about 300 million euros ($399.6 million), the fund is broadly based upon the themes of water, food, and renewables, featuring top holdings such as Denmark's Vestas, the world's No.1 wind turbine maker, and U.S. First Solar, the world's biggest maker of solar cells.
"Look at the results from First Solar and the corresponding rise in its share price. The market was betting on a negative surprise while we were convinced the company would deliver. I tend to have a contrarian view," Huber said.
The company earlier this week posted a higher-than-expected profit and raised its 2010 forecast due to strong European demand for solar modules, sending its shares up 18 percent.
SEEDS & POTASH
Top holdings of the fund also include agricultural stocks -- accounting for a third of the fund's volume -- with a particular focus on fertilizer, pesticide and seed makers, such as Germany's K+S, Canada's Potash Corp, and Norway's Yara International, the fund's No.1 stock.
Huber sees upside here as well, even though demand for potash has been hit hard by the economic downturn as investors rushed into agricultural commodities they later abandoned.
"In the agriculture segment, we believe that demand, particularly in China, will boost the recovery and that pricing pressure will ease. Of course we are talking about a two to three year time frame when we're making this assumption, but we have a conviction here."
Potash Corp, the world's largest fertilizer producer, on Thursday raised its earnings forecast due to a sharp rebound in potash demand, two weeks after Syngenta, the world's largest agro-chemicals company and also a top holding in Huber's fund, signaled gains from cheaper raw materials.
Huber said that one advantage of the fund's strategy was that all of its themes were connected, and that holdings could be reduced according to current market risk.
"You need water to grow crops and to create renewable energy, while agriculture has the potential to trigger a wave in the biofuels sector ... If uncertainty in the market rises, we grow our holdings in the water segment. If risk eases, we hike renewables." (Editing by Rupert Winchester)