A recently published study by Dartmouth College indicates that from 1992 to 2013, global GDP was sapped to the tune of $16 trillion due to extreme temperatures. It’s just one example, but it paints a picture as to why the renewable energy investment theme has long-term legs.
For investors, the runway for renewable energy investing is expansive. So are the choices, but stock-picking in this arena is difficult. That underscores the benefits of exchange traded funds, of which there are plenty providing access to clean technology and green energy equities. Renewable energy ETFs could be the ideal avenues for advisors and investors looking to tap themes such as increased clean energy adoption and increases in government spending. Data confirm both catalysts are afoot and growing.
“Based on the International Energy Agency’s latest World Energy Investment 2023 report, global investment in clean energy continues to rise and is projected to reach USD 1.7 trillion in 2023,” notes S&P Dow Jones Indices. “The difference between the investment in clean energy and fossil fuels has continued to increase, meaning we continue to see more capital invested in the clean energy space than ever before.”
In what represents more good news for investors evaluating renewable energy ETFs, that $1.7 trillion is a mere fraction of what needs to be spent in the coming decades to fight climate and reach net-zero goals. With that in mind, consider some of the following ETFs.
ALPS Clean Energy ETF (ACES)
The ALPS Clean Energy ETF (ACES), which tracks the CIBC Atlas Clean Energy Index (NACEX), offers investors a multi-pronged approach to renewable energy investing. The $474 million ACES, which turned five years old in June, doesn’t focus on a single clean technology or renewable energy concept.
Rather, the fund features exposure to seven industry groups and that’s to the benefit of investors that don’t want to stock or industry pick. Approximately 54% of the ACES portfolio is allocated to electric vehicle and solar stocks. That’s large concentration in two industries, but it’s also representative of the renewables investment opportunity set.
“Solar power, for example, is gaining significant ground in two notable areas: rooftop solar panels for residential homes and solar farms built by electric utilities to replace coal-powered plants,” wrote Morgan Stanley investment strategist Vijay Chandar. "Increased demand for solar products has fueled competition in the industry, driving costs down. In fact, solar electricity generation costs have decreased 83% since 2010."
SPDR S&P Kensho Clean Power ETF (CNRG)
The SPDR S&P Kensho Clean Power ETF (CNRG) is unique in the renewable energy ETF category in that its underlying index – the S&P Kensho Clean Power Index – leverages artificial intelligence (AI) in its weighting methodology.
AI is paired with a quantitative weighting methodology so CNRG isn’t entirely dependent on AI to build the index. Still, the ETF provides investors with exposure to more than 15 industry groups. Add to that, none of its 51 holdings exceed a weight of 2.91%, indicating single-stock risk is somewhat benign in this fund.
Importantly, CNRG is levered to the theme of spending aimed at shoring the electrical grid, which is expected to see significant increases over the long term.
“One of the biggest barriers to a 100% renewable grid is the intermittency of many renewable power sources. The wind doesn’t always blow and the sun doesn’t always shine — and the windiest and sunniest places are not close to all the country’s major population center,” according to CNBC. “The solution is a combination of batteries to store excess power for times when generation is low, and transmission lines to take the power where it is needed.”
KraneShares Electrification Metals Strategy ETF (KMET)
The KraneShares Electrification Metals Strategy ETF (KMET) is a departure from the other funds highlighted here and other ETFs in this category because it’s comprised of commodities futures contracts of metals needed to drive the renewable energy transition.
KMET’s underlying index has exposure to futures contracts on aluminum, copper, nickel, zinc, cobalt and lithium, so the fund is a play on industrial, not precious metals. While that may not be “sexy” in commodities terms, the fund is still a relevant play on the renewable energy spending boom.
Plus, as a commodities ETF, it’s less correlated to traditional asset classes and it could benefit from short covering in the industrial metals futures market.
“For the past few months, Commodity Trading Advisors (CTAs) had large short positions in the space, but short covering in July led to a strong bounce off the lows for several key metals, which have posted some of the worst YTD performance rates in the commodities markets,” observes S&P Dow Jones.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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