Investors looking to add sustainability to their portfolios might want to consider strategies that provide access to direct purveyors of clean technologies and services, which could be a rewarding idea as renewable energy escalates.
The SPDR Kensho Clean Power ETF (CNRG) is one of the exchange traded funds that provides that exposure. CNRG follows the S&P Kensho Clean Power Index. That index leverages artificial intelligence and a quantitative weighting scheme to identify opportunities among clean energy companies, including those in the hydroelectric power, solar, and wind industries.
CNRG, which debuted in October 2018, is tethered to theme of elevated renewable energy spending, and that’s not a pipe dream. It’s materializing in real time, with some experts forecasting a major reset in green asset prices in the years ahead.
“Capital and investments would start to flow to more sustainable assets and away from less sustainable ones,” notes BlackRock. “We argued that this would cause a repricing over time as we believed markets would get ahead of the actual transition to a greener world. Our new analysis shows the repricing effect is real and growing, as it was negligible in the period 2016-2019.”
While CNRG is home to just 45 stocks, it is highly diverse at the industry level with exposure to 15 groups, indicating that the fund touches a variety of corners in the clean energy landscape. That breadth is a potentially favorable trait because the ongoing green transition is forecast to create multiple winners across a variety of industries.
“We see the transition driving a relative return advantage for greener sectors such as tech and healthcare over browner sectors such as energy for years to come, all else equal. There will be periods when browner assets outperform, and we see investment opportunities in low-cost oil and gas producers leading decarbonization within their sectors,” concludes BlackRock.
Not surprisingly, CNRG has some technology exposure, including an almost 22% weight to semiconductor names. That makes sense, as chips are integral components in the production of a variety of clean technologies.
Additionally, CNRG is levered to the greenification of older industries, such as utilities. Utilities, which are playing increasingly important roles in transmission of renewable energy, account for over 27% of CNRG’s roster. The fund also has some midstream energy exposure, which is relevant because some companies in that industry are rising players in the delivery of renewable energy — a trend that’s expected to increase as pipeline operators prepare to capitalize on, not be left behind by, the green transition.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.