Renewable Energy's Next Frontier: How Artisan's Shift to Underpenetrated Markets is Paving the Way for Growth

The global renewable energy transition is no longer confined to the developed world. Emerging markets, where energy demand is surging and infrastructure gaps are vast, are becoming the next battleground for clean energy investment. Artisan International Explorer Fund, a $746 million vehicle focused on undervalued non-U.S. equities, is positioning itself at the forefront of this shift. In Q1 2025, the fund's strategic pivot toward underpenetrated markets and technologies offers a compelling roadmap for investors seeking exposure to the next wave of renewable energy growth.

The Undervalued Renewable Opportunity

While Europe and North America dominate headlines for their solar and wind advancements, the real growth lies in regions where energy access is still inconsistent. Southeast Asia, Latin America, and parts of Africa face a dual challenge: rapidly growing populations and aging, carbon-intensive infrastructure. According to the International Energy Agency, over 600 million people in Sub-Saharan Africa lack access to electricity, creating a massive opportunity for decentralized renewable solutions like solar microgrids and small-scale hydropower.

Artisan's Q1 strategy reflects this reality. By emphasizing its “Consumption Convergence” thesis—the idea that domestic demand in emerging economies is underpenetrated—the fund is targeting companies that bridge the gap between global clean energy technologies and local needs. For instance, the fund's 5.76% stake in Sea Ltd (a Southeast Asian digital ecosystem giant) and its 5.17% position in MercadoLibre (a Latin American e-commerce leader) highlight investments in firms that leverage fintech and logistics to support renewable infrastructure rollouts.

Navigating Risk with Flexion

Renewable energy projects in emerging markets are not without risks. Political instability, currency volatility, and underdeveloped regulatory frameworks can derail even the best-laid plans. Artisan's “Flexion” risk management framework, however, quantifies “capital at risk” and adjusts exposures dynamically. This approach helped the fund outperform broader emerging markets indices in 2023, reducing U.S. equity exposure to 35.98% of assets while boosting allocations to Brazil and China, where equity gains reached 14.5% and 19.1% in 2024.

Data-Driven Insights

To gauge the fund's alignment with renewable opportunities, consider these metrics:
- Artisan International Explorer Fund's YTD Performance (Q1 2025): 7.46% return, outperforming the MSCI Emerging Markets Index by 2.8 percentage points.
- Global Renewable Energy Investment Growth: Emerging markets accounted for 40% of new solar and wind capacity additions in 2024, up from 25% in 2020.
- Valuation Discount: Emerging markets equities trade at a 25% discount to historical averages, despite improving earnings momentum.

Where to Look Next

Artisan's strategy suggests three underpenetrated areas for investors to watch:

1. Decentralized Energy Solutions:
   Companies like Sunna Design (Moroccan off-grid solar provider) and Zola Electric (African solar home systems) are scaling rapidly. These firms avoid reliance on centralized grids, a critical advantage in regions with poor infrastructure.

2. Grid Modernization:
   Utilities in Latin America and Southeast Asia are upgrading to integrate renewables. CPFL Energy (Brazil's second-largest private utility) and PT PLN (Indonesia's state power company) are investing in smart grids and battery storage.

3. Policy-Driven Catalysts:
   Countries like Vietnam (targeting 15 GW of solar by 2030) and Nigeria (planning to electrify 95% of households by 2035) are rolling out subsidies and regulatory reforms. Artisan's focus on “passport companies”—those adapting global tech to local needs—positions it to capture these tailwinds.

Risks to Consider

• Policy Volatility: Geopolitical tensions (e.g., U.S.-China trade disputes) could disrupt supply chains for solar panels and batteries.
• Currency Exposure: Emerging market currencies remain volatile, though Artisan's Flexion framework aims to mitigate this.
• Execution Risk: Scaling renewable projects in underdeveloped regions requires strong local partnerships and regulatory navigation.

Investment Takeaway

Artisan International Explorer Fund is betting that underpenetrated markets will drive the next leg of renewable growth. Its disciplined focus on undervalued companies with scalable, local solutions makes it a standout vehicle for investors willing to look beyond the usual suspects.

While risks remain, the fund's 7.46% YTD return and 9.61% 10-year track record suggest this strategy is paying off. For thematic investors, pairing Artisan with direct exposure to firms like Sunna Design or CPFL Energy could amplify returns in this overlooked sector.

In the renewable energy race, the next winners won't be built in Silicon Valley—they'll rise in the sun-drenched plains of Kenya or the rainforests of Brazil. Artisan's Q1 shift proves that the smart money is already there.

Disclaimer: Past performance does not guarantee future results. Investors should conduct their own research or consult a financial advisor before making investment decisions.