For investors in alternative energy companies, the election of an American president whose slogan is «drill, baby, drill» was bad news. Since Donald Trump won the election on November 6 and became the 47th president of the United States, funds in the Morningstar Equity Sector Alternative Energy category have significantly underperformed global equities.
Through the end of February 2025, funds in this category lost nearly 6 percent on average, while the Morningstar Global TME Index rose by more than 8 percent. Additionally, investors withdrew over 3 billion euros from these funds, reducing the total assets under management to 18 billion euros.
Immediately after taking office, Trump put his words into action. Just as during his first term, he withdrew the U.S. from the Paris Climate Agreement, rolled back environmental regulations, and froze funding for green energy projects.
Nevertheless, alternative energy funds have been underperforming for some time. After a stellar year in 2020 with a 62 percent return, 2021 saw an underperformance of 20 percentage points. In 2023, they lagged by another 28 percentage points. Since June 2023, investors have been pulling money out of these funds every month, reaching a total outflow of 9 billion euros by October 2024.
However, the societal and economic trend toward a more sustainable energy sector appears irreversible and is expected to eventually replace fossil fuels in the long term. For investors looking to capitalize on this transition, we discuss two funds in this category that are covered by Morningstar’s fund analysts: Blackrock Sustainable Energy and Polar Capital Smart Energy.
People
Both funds are managed by strong teams, but there are clear differences in team structure and workload. Blackrock’s Alastair Bishop has extensive experience with the sustainable energy theme, as does his co-manager Charlie Lilford, who joined the team in 2018. They form a strong duo and are supported by two analysts who are somewhat less experienced. Additionally, they can rely on support from the 15-member Blackrock Thematics and Sectors team, of which they are part. Nevertheless, there are concerns about workload, particularly regarding Bishop’s involvement in multiple strategies. This keeps the People Pillar rating at Average.
Thiemo Lang of Polar Capital is also highly experienced, with more than twenty years of expertise in the technology and alternative energy sectors. He leads a compact team of three seasoned and skilled analysts who worked with him at Robeco before moving to Polar Capital in 2021. They manage both this strategy and Polar Capital Smart Mobility, which is closely linked to the smart energy theme. The focus, experience, and expertise within the team justify a People Pillar rating of Above Average.
Process
Both BGF Sustainable Energy and Polar Capital Smart Energy employ structured, quality-driven approaches. Despite some differences in their processes, both funds earn an Above Average rating for the Process Pillar.
Blackrock’s approach combines top-down macro research with bottom-up stock selection, focusing on companies that benefit from the transition to a low-carbon economy. In contrast, Polar Capital follows a nearly entirely bottom-up approach within a thematic framework consisting of four clusters, including clean energy and energy efficiency.
Although both strategies prioritize quality and long-term investment, Blackrock’s approach is broader. Additionally, both strategies maintain a solid focus on valuations, but Bishop enforces stricter discipline compared to Lang, who is more willing to pay a higher price if it aligns with higher expected growth.
Portfolio
The different investment strategies are clearly reflected in portfolio composition. BGF Sustainable Energy focuses on established, high-quality companies, leading to a preference for largecaps. Historically, Polar Capital Smart Energy has leaned toward mid- and smallcap stocks, but recently, it has shifted toward larger companies, particularly in the industrial and technology sectors. Additionally, there is a notable difference in style: Blackrock takes a more blended approach, while Polar Capital is more explicitly focused on growth stocks.
Lang has always preferred technology companies, which made up approximately half of the portfolio as of the end of January 2025. Bishop’s allocation to technology companies is significantly lower, though he still invests 35 percent of the fund’s assets in this sector. However, his portfolio has a pronounced overweight allocation to utilities, accounting for nearly 22 percent compared to less than 6 percent in Lang’s portfolio.
Performance
The differences in positioning are also evident in the performance of the two funds. Under Bishop’s leadership, BGF Sustainable Energy’s more defensive approach has resulted in lower beta, reduced volatility, and a favorable downside capture ratio compared to category peers. As a result, it outperformed competitors during market downturns, such as in 2018. However, it often struggles in strongly rising markets. For instance, in 2020 and 2024, it was hindered by its underweight position in technology relative to the category and its overweight allocation to utilities.
The performance profiles of the BGF Sustainable Energy and Polar Capital Smart Energy strategies highlight their distinct risk-return characteristics. This also means that, given the sector positioning and slight tilt toward growth stocks, investors should expect relatively high risk metrics. For example, the fund lost more than average in 2022, but its recovery in the following two years was also remarkable.
Ronald van Genderen is a senior manager research analyst at Morningstar. Morningstar analyzes and evaluates investment funds based on quantitative and qualitative research. Morningstar is part of the expert panel at Investment Officer.