Ecofin ready to bounce october 2026

For professional investors and advisors only

Electricity stocks: Ready to bounce? Michel Sznajer, Portfolio Manager, Redwheel Global Renewables Infrastructure strategy October 2026

Against a backdrop of high interest rates and heightened uncertainty, we examine whether recent market volatility has created an attractive investment opportunity in the electricity sector. In environments where growth is accelerating, and valuations appear to be approaching trough levels, history suggests that the electricity sector has the potential to perform well once interest rates peak.

The market generally regards utilities and renewables as interest rate sensitive sectors, given their long-duration cash flows and relatively high gearing. As a result, when long bond yields peak, as is the case this year, the sector has come under pressure irrespective of company fundamentals. We have therefore seen broad weakness in the US utility index, down 14.4%1 since early June, while the renewables and clean energy sector has also been falling, with the S&P Global Clean Energy Transition Index down 29% over the same period1.

Against this backdrop, we examined whether the market has been mistaken and the reaction excessive. We analysed the correlation of the Redwheel Global Renewables Infrastructure Strategy (GRI) with interest rates, over 5-10 years. The correlation ranged from -0.4 to -0.3, indicating only a moderate negative correlation 2.

In addition, we sought to understand how the Strategy performed when interest rates peaked and troughed since inception 2. In the chart below, we show average performance six months after an identified peak or trough event between December 2015 and August 2026. From the interest rate peaks, the Strategy generated an average return of 10% in the subsequent six months. For example, in October 2023 the Strategy rose 10.4% six months after the US 10-year Treasury yield peaked at 4.99% (and rose 26.9% 12 months after the peak). Interestingly, the skew appears positive for the Strategy: following interest rate troughs over the same period, it declined by less than 2% on average after six months.

Chart 1: Redwheel GRI - Performance after US 10-y Treasury yield peaks and troughs

Source: Redwheel, September 2026. Past performance is not a guide to future results. The information shown above is for illustrative purposes only. From December 2015 to August 2026, we identified 6 peaks and troughs. A peak is the highest point in the period that was not surpassed in the subsequent or prior 6 months; for troughs, where the lowest point was not surpassed. Performance is shown net of fees and is the average performance 6 months post peak or trough event.

1 Source Bloomberg, September 2026 2 Source: Redwheel, September 2026

This analysis suggests that, historically, peaking interest rates have offered attractive entry points for investors. That would be enough of a signal on its own, but the dislocation caused by interest rates comes at a time when fundamentals are strong.

Attractive fundamentals As shown in the charts below, US earnings revisions have been positive in the past 12 months and have accelerated since June, supported by strong first-half results and improved outlooks. Positive earnings revisions feed an already accelerating earnings growth picture for the sector.

Chart 2: US Utilities - Earnings revisions for the last 12 months

Source: Bloomberg, September 2026. Past performance is not a guide to future results. Indexed to 100.

Chart 3: US Utilities - Earnings per share from 2018 (USD)

Source Bloomberg, September 2026. Past performance is not a guide to future results. Forecasts and estimates are based upon subjective assumptions.