Investing in the New Energy Economy with Blue Horizon Capital
This transcript has been edited for clarity.
Dan Carreno: Thank you for tuning in to Rewilding Wall Street, where we provide insights and analysis into the ever-evolving world of sustainable investing. And I'm Dan Carreno.
Brittany Damico: And I'm Brittany Damico.
Dan Carreno: And today we are very excited to welcome the team from Blue Horizon Capital to the podcast. For those who are not familiar, Blue Horizon is an index and research company, and they focus on helping investors capture the opportunity associated with the new energy economy. Specifically, we are joined by two of the founding partners of the firm. We have Tony Fusco. Tony, how's it going today?
Tony Fusco, Blue Horizon Capital: Good. Thanks for having me.
Dan Carreno: Excellent. And John Mitchell. John, how's it going?
John Mitchell, Blue Horizon Capital: Thanks, Dan. Great to be here.
Brittany Damico: I love this topic, and I'm very excited to dig in today. To kick it off, let's learn a little bit more about you guys. Can you tell me a little bit about your backgrounds and what led to the founding of Blue Horizon Capital? And we'll kick it off with John.
John Mitchell, Blue Horizon Capital: Hi, Brittany. In terms of my background, I'm an engineer by training. I've worked in almost every function that you would find in a typical corporation, from R&D to project engineering, sales, marketing, M&A, and a variety of executive positions. I've held leadership positions in advanced materials companies, specialty chem, industrial gases, utilities, lithium, and venture capital. I have managed facilities on five different continents. And back in 2020, we launched Blue Horizon Capital because we felt high conviction and passion for the new energy economy and the opportunities that it provides. I was looking at investment vehicles for myself at the time, but I really couldn't find an investment vehicle that I could understand from a portfolio construction standpoint. I started talking to Tony back in 2012 about the creation of a product. We eventually launched it in 2020 with an index that tracks the new energy economy.
Brittany Damico: Thank you. Tony, why don't you tell me a little bit about your background and what led you to partner with John?
Tony Fusco, Blue Horizon Capital: I have a unique background in terms of our typical team at Blue Horizon Capital. The majority of the members are industry professionals, experts within some component of new energy economy. I come from a financial services background. Most of my career was spent managing money in the equity derivative space. As John mentioned, we've been lifelong friends, and he's continually been talking about the coming energy transition. And he started to make a lot of sense to me about five years ago. The light bulb went off, and I said you're right. This is a thematic growth story that has a lot of longevity. It's going to be multi-decade. And when you're in the investment management world, you're always looking for those multi-decade themes that can carry you through. And so, the light bulb clicked, and shortly after, we launched Blue Horizon Capital, and it's been a lot of fun. It's been a pivot for me in terms of learning a lot about the energy transition and the underlying players. If you were to look at our core team, the majority of them have spent their life in some aspect of the new energy economy. So, there's a lot of insight and industry expertise that you don't typically get with a traditional asset management firm. You have a lot of analysts and financial guys like me. It's a unique differentiator that we have financial service expertise coupled with industry expertise.
Dan Carreno: Outstanding. And John, I put a pin in something that you said earlier about how you as a personal investor went out into the world and didn't like what you were seeing in terms of the large fund complexes and how they were constructing funds focused on the new energy economy. Can you expand on that? What did you see that you thought were shortcomings, and what have you done at Blue Horizon to bridge that gap?
John Mitchell, Blue Horizon Capital: What I saw in the construction was highly focused exposure around individual solutions that are only really addressing a small niche of the new energy economy. For example, there are focused solar funds, but solar energy is just one component of all the different energy schemes. And diving into the construction of those, it was odd to me to see the names that they were taking highly concentrated positions in. It felt to me that the portfolio managers did not understand the underlying technologies and which technologies could end up disrupting other technologies and companies. It did not seem to correlate to the leaders that we were speaking to around the world. Part of it was how the funds were constructed, but also the constituents they selected. And in some cases, these funds were not global. The energy economy is a global economy, and the leading technologies are coming from all over the world. So, if you have a fund that's strictly focused in a US context only, then they're missing out on a lot of leaders that could be coming from other parts of the world.
Brittany Damico: I think that's an excellent segue into our next question, which is giving a little bit more insight into the various segments of the new energy economy and what you really think is the most exciting element of each of them.
Tony Fusco, Blue Horizon Capital: We wanted to take a holistic approach to our index because there are many interconnected parts of the new energy economy. We needed a lot of constituent members. We wanted one hundred companies in this index because there are a lot of different exposures that are required to properly capture the entirety of the new energy economy. And we did not want lumpy exposures, so we made it an equal-weight index. It's unconstrained and diversified by market cap and geography. We wanted it to be benchmark-like exposure to the entirety of the new energy economy. This energy transition is creating a new energy economy, and we break that down into five broad segments. It's all the way from how energy is generated; that's our new energy generation segment. To how energy is consumed; that's in the e-mobility segment or the application. Then in the middle, there are three segments that are not often talked about but are very important. Energy distribution, the performance materials that are needed in this transition, and then how energy is stored.
John Mitchell, Blue Horizon Capital: Walking through the five segments and telling you a little bit about why we're excited. Starting with e-mobility, e-mobility is about the electrification of everything that requires energy. And why are we excited? Because the electrification in many cases provides the user better performance. It provides that performance at a lower cost. And in most cases, it improves our mobility, whether it's communication, the availability of information, or transportation. And electrification is enabled by two things; the next segment, which is generation, and how you store energy. So, diving into the second segment on generation, the reality is we have to diversify away from fossil fuels. We do not demonize oil and gas in any way. It was a necessity. It was part of the last energy transition. It improved the quality of life of everybody around the world. But it is a finite resource, meaning we are going to run out, and if we wait to the very last minute, there will be an anarchy in the world. And burning fossil fuels as an energy source also had some unintended consequences. Unintended health consequences. Unintended climate consequences. Unintended national security consequences. We're spending lots of money protecting the routes for oil and gas. We're spending lots of money on healthcare. The reality is what comes out of a tailpipe in a car and what comes out of a smokestack are toxic gases. You will not live if you are in a sealed room with them. So, it is a good thing that we are transitioning to clean technologies for our kids and grandkids. Then the next one is storage. The storage story is about technology development and innovation. We're not about investing in companies or technologies or ideas that require government subsidy. We don't get excited about that. I never did in corporate America, and I still don't. These companies stand on their own because the technology has evolved. It's high performing, and it's cost effective. Getting more and more energy in smaller places in a more economical way, is the enabler that unlocks the ability to use solar and wind and other intermittent energy generation. Think about the amount of energy that we all carry around in our cell phones and the computing power that we have today. It’s the amount of energy that powered one of the early supercomputers. The next one is distribution and efficiency. For every 100 units of energy that we create, the end user only uses 30 to 35 units. That's a lot of waste. Across the distribution and efficiency segment, there is so much opportunity to use energy in a more efficient way. We're super excited about smart grid applications and technologies that allow us to take a hundred units that we create and use a lot more than the 30 or 35 units in the end-use application. And lastly, we have the advanced materials that make these technologies possible. There are a lot of different types of materials that are exciting to us, but I think the two workhorses are copper and lithium. These are two significant workhorses in terms of enabling storage, transmission, and power generation. As Tony said, there are 40 to 50 sub-segments where we look at the individual technologies and value propositions of the companies. And we are not only looking at the technology, but we’re also looking at growth, their ability to execute, and the leadership that they have in the technology.
Dan Carreno: Excellent. The final question for you as we record in early 2024: I think it's fair to say that the last couple of years have been tough for companies in the new energy economy and the segments that you just reviewed. Do you have any commentary about where we are in 2024 and what your outlook is for those segments as we move forward from here?
John Mitchell, Blue Horizon Capital: We have conversations at all levels of a company's organization from the CEO to the scientists in the labs, etc. And often we see massive volatility in individual names or individual segments, and we ask ourselves what's changed? And oftentimes, the answer is nothing. So, there is sometimes lots of market volatility, but the underlying investment thesis hasn't necessarily changed. There was a run up in narrative coming out of Covid with lots of pent-up demand and people looking for good stories with strong policy tailwinds. That created a big uplift in terms of equity performance. In our view, it did get pretty frothy. And what we've seen is a reset back to normality. And in some cases, the pullback has been too great. But I think it's a great entry point for those that are interested in exposure to the thematic, even in this current interest rate environment. I think if the interest rate environment does come back down a little bit, it's a tailwind catalyst. But keep in mind, the exposures that we're looking for within our index are technology and economic-driven. The policy tailwinds are helpful, but they're not required. If you were to look at the constituents within our index, these are leading global companies that have balance sheet strength and teams that can execute. This is a thematic that has to happen. We're excited about it. Although the reset has been painful, we're excited about the entry point it gives investors.
Tony Fusco, Blue Horizon Capital: You have to be a forward-looking investor. The last three years is history. It really doesn't matter. That's backward looking. The question is what does the future look like, and how can you predict what's going to happen in the next 3, 5, 10, 15 years? I like to ask investors four questions: Where do you think energy infrastructure capital flows are going to go? Where will innovation and technology have the greatest impact? Where will the growth be? And what part of the energy ecosystem will get global public policy support?
Brittany Damico: The last question of the day is, if listeners would like to learn more about Blue Horizon Capital, where should they go?
Tony Fusco, Blue Horizon Capital: Our website is www.bhc-invest.com. That's the general website for Blue Horizon Capital. There is a link to an ETF product that tracks our index. You can go there and view the team. We talk a little bit about our framework and how we define the topics we covered today. There's a lot of investor material to download from both websites and, of course they can get more information from the team here, Brittany and Dan have a lot of good information to share.
Dan Carreno: Tony, John, thank you so much for your comments. Before we let you go today, we will just take a few minutes to sit and chat around the campfire. This is our usual segment where we go around the horn and briefly share something that we've come across in our lives recently that's been interesting, inspiring, or thought provoking. Brittany, you usually start us off. What do you have for us today?
Brittany Damico: I have been trying to come up with ways to explore Seattle, integrate into the city, and get my brain working in different ways. So, my partner and I adopted alphabet adventuring. You pick a letter of the alphabet, or you go in sequence, and then you find an event or something around that letter that you can go out and do. For example, for A, we went axe throwing, which I absolutely love. We went blacksmithing. For C, you can pick things like comedy or concerts. It’s a really fun way to adopt new activities and explore the city that you live in.
Dan Carreno: Excellent. I love that. Tony, how about you?
Tony Fusco, Blue Horizon Capital: Well, living in the city of Philadelphia during Covid, we all struggled through that period where city services were shut down. So, I gained the reputation around my immediate neighborhood as being the graffiti remover and the litter pickup service. If you go into my apartment, you'll see 25 different colors of spray cans that I have fully stocked to match all the different mailboxes or streetlights. I would do my daily morning routine surveying a three or four block area, covering up the graffiti, and then bringing a couple bags of trash with me every day. And thankfully, as we're coming out of Covid, things are on the uptick.
Dan Carreno: Well, that's going to be a tough act to follow. John, if you're not beautifying Philadelphia in your spare time, what might you be doing?
John Mitchell, Blue Horizon Capital: As you can tell, we have a few Philadelphia natives here, and yesterday was a momentous occasion for Philadelphia Eagles fans as Jason Kelce retired. He epitomizes the grit and the passion that we feel form the city and the Eagles.
Dan Carreno: I thought that it would be tough to one up Tony, but a tribute to Jason Kelce, I think you've been dethroned, Tony. I want to thank everybody again, Tony, John, Brittany, thank you so much for coming on and sharing your views. For those that are interested in more information about O-Six Impact Partners, you can go to our website and feel free to get in touch with us there. We are here to support your sustainable investing ambitions. Thank you for tuning in today, and we will be back soon with another episode of Rewilding Wall Street.
DISCLOSURE:
The opinions expressed herein are those of O-Six Impact Partners, LLC and are subject to change without notice. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk, and past performance is not indicative of future results. Therefore, it should not be assumed that any specific investment or investment strategy made reference to directly or indirectly by O-Six Impact Partners, LLC will be profitable. Be sure to first consult with a qualified financial adviser, tax professional, or attorney before implementing any strategy or recommendation discussed herein.
O-Six Impact Partners, LLC specializes in providing outsourced sales and marketing services to investment managers and related financial entities. These services may include lead generation, client outreach, relationship management, and promotional activities aimed at enhancing the visibility and market presence of investment products. O-Six Impact Partners’ services are strictly limited to sales and marketing efforts. Under no circumstances should any communication, content, or action taken by O-Six Impact Partners be construed as investment advice or recommendations.
