Perennial Partners portfolio manager Damian Cottier reckons he's a pessimist by nature.
But there is one exception to his cynicism, which is the world's commitment to energy transition.
"At a personal level, this optimism springs from my experience with my hybrid car and the integrated solar and battery energy system that I installed at home about a year ago," Cottier said on the Perennial blog.
"Both have exceeded my expectations in terms of reducing my reliance on fossil fuels, although both need to be more ubiquitous to have a meaningful effect."
Even at a wider, systemic level, Cottier has observed the significant progress the decarbonisation movement is making.
"My optimism is also the result of the rapid improvements in the efficiency of wind and solar power over the past 10 years or so.
"About a decade ago, the conventional thinking was that neither would ever be economic without subsidies. That is now a long way from being the case."
So how does this optimism in the energy transition translate to Cottier's investment decisions?
There is one ASX stock he's bullish on that fits perfectly:
Technology squeezing more out of lithium
Cottier named Calix Ltd (ASX: CXL) as one that his fund is invested in that could be a major player in the global transition.
The energy technology company has several projects running, but the portfolio manager noted two in particular.
"The company's joint venture with Pilbara Minerals Ltd (ASX: PLS), in which the Calix technology is being developed to increase the amount of lithium that is produced from a given amount of ore," he said.
"[And] the advanced battery project the company is working on to develop lithium batteries that produce equivalent power to existing batteries from lower quality lithium."
Of course, Cottier admits it's an imprecise science to pick the "winning" solutions in a period of "rapid technological change".
He cited an old Warren Buffet quote that encapsulates this dilemma for investors.
"Sometimes, incidentally, it's much easier in these transforming events to figure out the losers. You could have grasped the importance of the auto when it came along but still found it hard to pick companies that would make you money.
"But there was one obvious decision you could have made back then – it's better sometimes to turn these things upside down – and that was to short horses."
Therefore Cottier's team explicitly excludes ASX shares that generate revenue from fossil fuels.
It's just wise investing.
Yes, fossil fuel energy stocks have boomed in the past 18 months after the Russian invasion of Ukraine. But this is not going to last, said Cottier.
"We remain comfortable with our view that this is unlikely to result in headwinds over the medium term, given the likely improvements in technology that will drive the energy transition at a faster speed than consensus thinking suggests."
