According to James Mackreides, investors don't have to choose between oil and renewable energy if they invest in these two energy funds
Given the appalling performance of renewable-energy infrastructure funds, you might expect the 219 million Guinness Sustainable Energy Fund to have done poorly in recent years. Contrary to expectations, the fund returned 150% in the three prior years but only 18% in 2025 after losing 17% in the preceding three.
The reason for this is that it has a much wider portfolio. The Guinness Sustainable Energy Fund is distributed among listed companies in the equipment, efficiency, electric vehicles, power generation, batteries, and infrastructure sectors, whereas the renewable infrastructure funds invest in a limited number of energy-generation projects.
According to co-manager Jonathan Waghorn, last year's returns were caused by better policy clarity, lower interest rates, and an increase in power demand from data centers and digital infrastructure as well as transportation, construction, industry, and the relocation of manufacturing to the United States. He points out that "global investment in clean energy in 2025 was £2.2 trillion, twice as much as in fossil fuels, reflecting the fact that renewable energy is the cheapest form of electricity in most situations." "As the main secular theme, rising power demand has replaced decarbonization.".
Profit from the growing need for electricity.
According to the International Energy Agency, the demand for electricity will increase by 3.7 percent in 2026, significantly higher than the average of 2.6 percent from 2015 to 2023, and then by 4 percent annually after that. Data centers and artificial intelligence currently make up 45% of the US power consumption, but by 2030, this percentage will rise to about 12%. Sales of electric vehicles (EVs) are predicted to rise by 4 million to 25 million in 2026, accounting for 29% of all sales. Although battery costs have dropped by 93% since 2010, they are expected to drop much more by the 2030s. EV sales are already more than half of the total in China, which makes up 60% of global sales. Due to inexpensive gasoline and range anxiety in a nation where driving distances are longer, they are only 10% in the US (compared to 20%25% in Europe), but by 2030, this is predicted to rise to 45%. Although there has been uneven support for policy, last year's changes to Donald Trump's "One Big Beautiful Bill Act" were not as negative as many had anticipated.
China met its 2030 target six years ahead of schedule in 2025, adding 430GW of renewable capacitymore than the entire world combined. According to Waghorn, approvals for new coal-fired power plants have slowed. He predicts that by 2050, the amount of coal-fired generation worldwide will have decreased by half. He anticipates a slight decline in gas-fired generation after it continues to grow until 2040. As electricity's share of total energy rises from 25% to 40% in 2045, renewable energy's market share of energy demand will rise from 15% to 40%.
Waghorn states, "Given the increase in electricity demand, it is no longer about renewables or fossil fuels, but about both." In addition to being less expensive, renewable capacity also has lower costs and shorter installation lead times than gas, which is becoming more expensive. Gas-fired generation will continue to play a significant role in supplying base load capacity and mitigating the intermittent nature of renewable energy. Due to the need to develop expertise, nuclear power will grow more slowly.".
"There is a lot of room for improvement in energy efficiency, which would allow overall demand growth to eventually slow from 2 percent to 1 percent annually. Spending must double to £600 billion annually by 2030 and then rise to £800 billion by the 2040s due to the growth in electricity demand. More than half of the grid transformers in the United States are thirty years old, and a large portion of the power grid in the Western world is forty to fifty years old. By 2040, the global power grid is expected to have doubled.".
As evidenced by the diversity of the fund's portfolio, all of this increases the investment opportunity. It makes the funds devoted exclusively to renewable energy projects appear stuck in a dead end due to their high sunk costs and declining wholesale prices. Despite this, the portfolio still trades at a 12 percent discount to the overall market. With higher earnings growthestimated at 12.7 percent annually in 2024-2027and above that of global markets, there is undoubtedly more upside to be had.
An energy fund for a world that still needs oil.
Due in large part to its prolonged poor performance, the oil and gas industry was a popular contrarian recommendation for 2026.
The case for the industry did not appear strong given that the price of Brent oil was stuck at £65 per barrel, the dollar was declining, demand was weak, and there was plenty of potential additional supply. However, the Gulf War altered all of that, causing the price of oil to soar to more than £100 per barrel. The Guinness Global Energy Fund returned 41% in sterling in the first quarter, indicating that oil and gas companies are once again in favor. Is it now too late to participate?
According to co-manager Will Riley, oil was a "cheap commodity and at a 100-year low relative to the gold price," despite the fact that it appears pricey in comparison to recent prices. "In contrast to a 30-year average of 3 percent and 5 percent in 2012, the world was only paying 2 percent of GDP for its oil.".
The International Energy Agency has lowered its demand growth forecast from 0.73 million barrels per day (bpd) in 2026 to an average decline of 80,000 bpd. Longer term, it was previously predicted that oil demand, which was 104 million barrels per day in 2025, would reach a peak of 107 million barrels per day in the 2030s. Although demand is anticipated to drop only gradually, that peak might be accelerated if rising prices now offer an incentive to switch from oil at the margin.
Theoretically, 1011 billion cubic feet of gas and 20 million barrels of oil per day could not reach markets if the Strait of Hormuz were to close. Only a portion of this oil can be transported via other pipelines. Although it will take time, high prices will encourage new investment in both new production and new transportation infrastructure. For instance, there isn't a straightforward substitute for Qatar's 20% of the world's LNG production. Longer term, there may be more oil and gas available globally, which could partially offset the depletion of current fields. According to consulting firm Wood Mackenzie, Venezuela has the largest oil reserves in the world and its heavy (and expensive to extract) crude has a breakeven point of £80 per barrel. Riley points out that even if political stability and foreign investment return, "under-investment, infrastructure decay, sanctions and loss of technical capacity will take years to rebuild."
Although it had lagged significantly over the previous five and ten years, the Guinness Global Energy Fund had returned a respectable 9 percent in sterling last year before oil prices rose comfortably ahead of the sector. This explains why the fund, which is currently at 240 million, had decreased to 125 million. According to Riley, businesses' emphasis on cash flow and returns on capital was what propelled last year's performance. As they "tilted away from renewable energy to fossil fuels," integrated European majors like BP and Shell have performed well. The government's shift away from fossil fuels has also benefited Canadian businesses.
The Guinness Global Energy Fund portfolio was trading at a trailing price/earnings (p/e) ratio of 12.8 at the beginning of the year, which is a 40% discount to global equities. If prices stayed the same, there was little chance that earnings and cash flow would increase. But according to Riley, an 8090 Brent oil price will increase profits by 65%. The fund's p/e ratio will return to roughly 13 times, as opposed to the long-run average of 15, even after recent share price gains. Increased profits also allow businesses to reduce debt while increasing dividend payments, repurchasing shares, and funding additional investments.
The world has been reminded of the dangers of supply disruption, which is an important outcome of the Middle East crisis. Governments are likely to actively encourage large investments in new production to lessen reliance on the Gulf. For oil and gas companies with the requisite resources and experience, this is good news. After ignoring the industry for so long, professional investors will be searching for a chance to make an investment. Retail investors should as well.
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