Up 39% in FY26 - Is it the most overlooked opportunity in markets?

A quick look at the list of best-performing ASX ETFs in FY26 shows that thematic bets will always offer outsized returns, provided you back the right one. 

The AI and semiconductor trade has been a clear winner in global markets in recent months and years, whilst closer to home, a mini-commodities boom has meant materials has been the sector to beat on the ASX.

But there's another thematic that may have faded from the public consciousness, but has also quietly delivered over the last few years.

The Munro Climate Change Leaders fund returned 39.64% in FY26 (net of fees and with assuming distributions were reinvested), finishing ahead of many emerging markets and tech funds that were directly plugged into the winning AI trade. 

The fund invests in global companies involved in decarbonisation, a thematic that has taken a backseat to the AI supercycle, despite itself being a beneficiary of the AI buildout as well as a suite of other structural and macro tailwinds. 

And the outlook looks stronger than ever, according to the fund's co-lead James Tsinidis, who says the sector has baked-in growth for the next decade, regardless of how things play out in the meantime.

Here, he explains how these tailwinds are creating opportunities across the green energy sector, as well as the areas of the markets and the stocks that have been driving outperformance. 

A quiet opportunity

A global political shift away from climate change and green energy may have led to its disappearance from the discourse, but those same political forces have also created a perfect storm for green energy and climate technology.

Surging demand for power, the AI data centre buildout, energy security and surging fuel prices are helping to drive demand in a sector that is already underpinned by undeniable structural growth drivers. 

The outcome is the rare investment theme that the broader market discussion is missing, according to Tsinidis. "There has been some policy stagnation on climate change in the last five years as compared to the previous five," he told Livewire. 

"So our sense is that the market is not very focused on overt ‘green energy’ or ‘decarbonisation’ opportunities today," he said. 

"This naturally presents opportunities, especially because many of these companies are also benefiting from ‘powering AI’ and energy resilience tailwinds."

Even the conflict in the Middle East, which has proven volatile for global equities, is proving to be the opposite for companies in the green energy sector as the need for energy security becomes more apparent.

"It's a tailwind for a lot of these companies, because they're building that power generation grid and the electrical grid," Tsinidis said in a recent fund update video. "The volatility offshore in the Middle East in some ways actually strengthens the positions of a lot of these companies and these areas of the world."

"A lot of our companies are actually operating in the US onshore and that just again shows the benefit and the resilience of the US and energy security."

Opportunities beyond AI

Much of Munro's performance can be put down to the electrification theme, where AI has sent demand into overdrive, according to Tsinidis. 

"The electrification of the economy, particularly in the US and the capex spend that's going in there to basically renovate the electricity grid in the US, is basically driving a lot of the performance for the fund over the last few years."

But while the AI supercycle remains a key component in the demand for the companies Munro invests in, the opportunity extends much further. 

"It’s true that the AI capex cycle is an important driver of electricity demand, and of energy efficiency technologies like HVAC and liquid cooling," said Tsinidis. 

"But it’s not the only driver."

Many of the demand drivers for decarbonisation and green energy predate the AI infrastructure buildout, and should continue to drive demand regardless of how the AI supercycle plays out.

"Electrification of cars and heating continues to drive electricity demand, which means more power generation and transmission is needed," said Tsinidis. 

"We are also continuing to see the cost of the ‘clean’ alternative become more economically attractive – renewable energy, EVs or energy-saving HVAC and insulation, for example. This should drive the transition regardless of climate policy incentives or the more recent AI tailwind."

The stocks and themes driving performance

Electrification companies like GE Vernova (NYSE: GEV) and Quanta Services (NYSE: PWR) have been some of the best performers, said Tsinidis. 

On a sector level, EVs (electric vehicles) have also been a strong performer, and one stock in particular again demonstrates the overlap between the green energy thematic and the AI supercycle, and the confluence of tailwinds flowing into the sector. 

German semiconductor manufacturer Infineon Technologies (ETR: IFX) produces chips for electric vehicles, as well as batteries, wind turbines and data centres. The stock is up 68% year-to-date and 84% over the last 12 months. A result, says Tsinidis, of those structural tailwinds organically driving better earnings. 

Chinese EV battery manufacturer CATL (SHE: 300750) has been another key performer that has benefitted from the same tailwinds.

HVAC (heating, ventilation and air conditioning) companies have also performed well as demand for energy-efficient technologies is driving revenue growth.

"Part of the reason that emissions have stabilised over the last few years in the developing world is that appliances are getting more efficient," said Tsinidis. "That demand for high-quality HVAC equipment is driving the backlogs for those companies and the services growth for those companies."

Fundamentally, rising demand across the board is being reflected on balance sheets, which in turn is driving price performance. 

"A lot of the backlogs and the orders that are coming into our companies - electrical companies, utilities, et cetera are going up, and so the earnings outlook is getting better," he said. 

"The share prices are basically reflecting that and our share prices are obviously feeding through to fund performance. It's no more complicated than that."

Taking a considered approach

The Munro Climate Change Leaders fund focuses on a selective portfolio of 15-25 global growth companies across four key decarbonisation themes: clean energy, clean transport, energy efficiency and the circular economy.

And while the structural tailwinds speak for themselves, Tsinidis says not all opportunities are created equal, both on a sector and stock level. 

"There is value on offer, but you must be selective."

The EV industry is an obvious example where the structural opportunity is readily apparent but selective exposure is still required. 

"While electric vehicles should continue to take share from combustion engine vehicles, there are so many EV makers that profitability continues to be a challenge," he said. 

"We think battery makers are a better way to invest in the EV theme because it’s much more consolidated, and the technology edge and R&D firepower of companies like CATL ultimately protect their profitability."

Just getting started

Years of underinvestment in infrastructure and power infrastructure in the US, but also globally, has meant supply would never be able to keep up with the unprecedented surge in demand we're now seeing.

The result is a growth trend where the growth is already locked in, says Tsinidis. 

"We can pretty well map out what's going to happen, because effectively the utilities give you three-year outlook or roadmap for their CapEx intentions," he said. 

"And the good news for us is you can quite clearly see where the investments are going to go and we think that the investments are going to go into renewables."

Of course, there will always be short-term challenges and noise to deal with, especially given the political climate around green energy and renewables right now. 

"There's going to be news flows that are going to create volatility," he said. "There's obviously the US midterms coming up in the next few months. It's never going to be a straight line, but a lot of these dynamics are bigger than any one election cycle or quarter."

But as a long-term thematic, Tsinidis says it's almost impossible to argue with the opportunity on offer. 

"We think this is a multi-decade demand inflection, and supply just hasn't caught up. Thankfully for us, the companies that we invest are all the suppliers of that equipment. They have a very good outlook for not just the next months, but probably the rest of the decade."