Some experts believe the recently passed Inflation Reduction Act has winners and losers in terms of investing perspective.
While it remains to be seen how severely the speculated “losers” — likely pharmaceuticals companies — are punished, it’s clear that market participants perceive the winners to be renewable energy and clean technology stocks and the related exchange traded funds.
That view goes a long way toward explaining why the SPDR Kensho Clean Power ETF (CNRG) is higher by 25.55% over the past month. CNRG follows the S&P Kensho Clean Power Index and holds 45 stocks, several of which are being anointed Inflation Reduction Act winners, underscoring the benefits of the ETF’s breadth.
“As we incorporate the projected impact of these provisions across our stock coverage universe, we have increased our valuations by up to 20%, or more, depending on the company and its specific product portfolio. Yet, in many cases the market has gotten ahead of itself and the price has surged ahead of our view of the long-term, intrinsic valuation of the company,” wrote Morningstar analyst Dave Sekera. “Stocks that are both fairly valued and expected to experience the greatest positive impact to their businesses include First Solar (FSLR), Plug Power (PLUG), and SunPower (SPWR).”
First Solar and Plug Power are CNRG’s largest and third-largest holdings, respectively, combining for nearly 7% of the ETF’s roster. SunPower is the fund’s sixth-largest component at a weight of 2.92%, as of August 17, according to issuer data. Indeed, CNRG is more than adequately levered to a variety of provisions found in the Inflation Reduction Act.
“The majority of the package focuses on incentives for adoption of renewable energy in homes, along with the acceleration of US manufacturing of solar panels, wind turbines, batteries, and the construction of clean technology manufacturing plants,” noted Matthew Bartolini, head of SPDR Americas Research.
Several of CNRG’s other holdings not mentioned above are also dedicated solar and wind names, and that doesn’t include the fund’s components with exposure to renewable energy. Those names including semiconductor makers and even traditional utilities, among others. The point is that the scope of the Inflation Reduction Act is wide, and investors need an ETF with depth to capitalize on the bill.
“As a result, CNRG may offer investors exposure to companies that could benefit from provisions in the new bill, as the fund is a concentrated basket of 46 firms offering exposure to both clean energy companies and suppliers to the energy transformation ecosystem,” concluded Bartolini.
For more news, information, and strategy, visit the ESG Channel.
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.