TORONTO (Reuters) - Canadian portfolio manager Martin Grosskopf is betting heavily on alternative fuel vehicles overtaking traditional cars as a pillar of the no-fossil-fuels allocation strategy of his AGF Investments (AGFb.TO) sustainable fund.
Grosskopf said he was scoffed at when he took a stake in Tesla Motors Inc (TSLA.O) four years ago, with analysts questioning potential demand. But the electric vehicle manufacturer's prolific growth since has helped quiet the critics.
He said the auto industry will only become more profitable for eco-investors as electric and hybrid vehicles turn mainstream and fuel economy targets tighten worldwide.
"That to me is the future of the industry," the portfolio manager said. "I don't spend a lot of time positioning in what I think will be a declining growth environment."
Grosskopf also expects the cost of lithium batteries, a key component of green vehicles, to fall 60 percent over the next five years after dropping 70 percent during the last three.
"We're invested in the supply chains that are going to benefit as electric vehicles emerge, as hybrids emerge, as alternative energy becomes a bigger part of our mix," he said.
Grosskopf runs a C$350 million ($273 million) sustainable investing fund at AGF targeting environmentally friendly energy, waste, water and healthcare companies and says the subject has never been hotter.
"In my 16 years in this area, this is by far the most meaningful acceleration in interest and in opportunity," he said.
"Right now in the investment community, they're all talking about climate change, they're all talking about supply chain issues in Bangladesh, they're all talking about mining failures, tailing pond screw-ups."
Global leaders agreed late last year to try to transform the world's fossil fuel-driven economy within decades to arrest global warming.
"What I'm interested in is, how is this transition to a more sustainable economy happening and how can we position our investors to take advantage of that," Grosskopf said.
He said the growing interest in his green strategy is led by family trusts and endowments as well as tech entrepreneurs looking to re-invest their fortunes in sustainable projects.
But he said large Canadian funds remain fearful of betting on investments that could go bankrupt as easily as they could go big.
The fund has a 5 percent exposure to Canadian companies, down from more than half under an earlier agreement with its largest client.
Additional reporting by Matt Scuffham; Editing by Cynthia Osterman