Renewable energy investment trusts have fallen from favour with investors in recent years primarily due to higher interest rates, but as rates come down, so the sector should benefit, according to analysts at Shore Capital.
Sam Banerjee, research analyst for investment funds at Shore Capital said: “The renewable sector in the UK has fallen out of favour with investors as interest rates increased.
"This reduced the attraction of the stable income streams offered and leaving trusts unable to raise fresh capital to invest."
But he added that, despite the negativity associated with the share prices of the trusts, when they have actually sold assets, typically the prices received have been at least the same as the value of the assets in the accounts of the trust, or higher.
He said he believed this was helping to improve investor confidence in the renewables sector.
Banerjee said it would take lower rates for the tide to turn and investors to want to own the trusts.
This is because many of the typically investors in renewable energy investment trusts have income as a priority, and compare the income yield from these assets with the income offered by government bonds.
As government bond yields rose, so the relative attractiveness of the yield from renewable energy assets declined.
Banerjee said the sector trades at a 26.5 per cent discount to net assets right now, with an 8 per cent yield.
His expectation is that as bond yields fall, so capital with come back in to the sector, driving up the price and narrowing the discounts.
Shayan Ratnasingam, senior research analyst at Gravis Capital, said in addition to income investors buying into investment trusts for the income as yields fall, investors whose priority is capital appreciation often value assets based on discounted cash flow models.
Lower interest rates would mean renewable energy trusts would look more attractive under those models.
