I wanted to start this column clarifying some previous points I made on passive investing.
Unfortunately, some trolls on LinkedIn seemed to take umbrage with it. My “Road to Damascus” conversion to passives, as one put it.
It rather missed the point – I have never had a problem with passives. Just as with investment trusts, ETFs and so on, they are all part of the armoury.
I realise some only use one bullet, but being flexible should be part of investment management.
Passives – especially global passives – have ruled the waves, especially over the last 15 years. In the main, this is because the biggest weighting, at over 70%, is the US.
My question was whether the US will remain dominant for the next 15 years in stock market terms? And whether it does or doesn’t, can active really make a comeback? Because, to do so, it has to offer something different, which comes with all sorts of business and regulatory risk.
Governments seem to have their heads buried deep in the sand
Which leads me nicely to the main point of my column – the energy transition.
If the UK and Europe continue on their present trajectory of backing unreliable, intermittent, weather-dependent renewables for electricity, the US economy will continue to dominate as it will have the lowest energy prices (alongside emerging markets).
To my knowledge, there are no high energy price countries with highly successful economies.
I would further suggest the energy transition is the number one problem facing the world economy, although you might not think so if you listen to the mainstream media, which studiously avoids any hard questioning on the topic.
Previous energy transitions – from wood and dung, to coal, oil and gas – have transformed our lives for the better. Going back only around 200 years ago, life for most hadn’t changed much for 1,000 years. You toiled the land to be able to survive a short, hard life because of the lack of energy.
We shouldn’t be demonising fossil fuels, which have done so much to raise our standards of living
All this changed with the arrival of fossil fuels. Market forces drove the transitions, as each new energy source was better and more efficient than the previous one. Each person today has the equivalent of 250 people labouring for them.
But this has all come to a shuddering stop with the arrival of wind and solar, carried forward not by market forces but a quasi-religious belief that ignores basic structural, scientific and economic problems, and can only be carried through by massive subsidies.
The complexity of the current energy market reminds me why I always hated performance fees on funds. My rule of thumb for investment products was always easy: if I had to take more than a couple of minutes to understand them, I knew they were expensive.
And so it proves with the energy market. Labour came into the election with a promise to cut bills by £300. They have, in fact, risen by £170. Why on earth would building more intermittent power help bring down bills? The sheer cost of maintaining offshore wind farms, which are mainly in the most inhospitable areas in the world, should make us question their economic worth.
The energy transition is the number one problem facing the world economy, though you might not think so listening to the mainstream media, which avoids any hard questioning on the topic
Indeed, a paper written by Gordon A Hughes suggests their real economic life is barely half the 25 years their finances are worked out on.
Yet we are being propelled by politicians to adopt hugely expensive products relying on electricity without a reliable producer for that electricity. At the same time, the cost of that electricity is rising not falling.
The UK has the most expensive electricity in the developed world. Perhaps that is why usage has declined by 20% since 2012. We are basically deindustrialising.
It’s even more odd when you think about the demands of data centres in an AI age. We have already seen some companies realise the huge problem. Just look at the recent tie up of Microsoft with nuclear.
Yet governments seem to have their heads buried deep in the sand.
To my knowledge, there are no high energy price countries with highly successful economies
We are told by this government it’s all about growth, growth, growth – but its current energy policy is insanely anti-growth.
We need cheap energy. We need to be building out gas turbine stations and nuclear. We shouldn’t be demonising fossil fuels, which have done so much to raise our standards of living.
The implications for future investment are fascinating. At some stage, the laws of physics and chemistry will take over, and investment in all parts of the energy structure that brings reliable power will be essential.
Remember that, despite the build-out of renewables, 85% of our consumption comes from fossil fuels. I can’t help wondering how all those renewable investment trusts are going to fare.
Mark Dampier is an independent consultant and can be found on X as @MarkDampier
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