Positive Inflation Reduction Act Implications for This ETF | ETF Trends

In the wake of the Inflation Reduction Act being signed into law, some investors are renewing their enthusiasm for renewable energy equities and the related exchange traded funds.

In many cases, that means market participants are leaning into ETFs focusing on specific renewable energy and clean technology concepts. They’re also evaluating broad-based renewable energy ETFs. Some other strategies are also worth considering, including the SPDR MSCI USA Climate Paris Aligned ETF (NZUS).

As has been widely noted, the Inflation Reduction Act features a massive amount of climate-related spending, which could benefit a variety of NZUS holdings.

“On Aug. 16, 2022, President Joe Biden signed the Inflation Reduction Act into law, which includes the largest ever climate-related investment by the U.S. federal government. Devoting USD 370 billion to climate and energy programs, the act commits the U.S. to a roughly 40% emissions reduction by 2030,” noted S&P Dow Jones Indices.

Home to 300 stocks, NZUS isn’t dedicated to a singular concept, such as wind or solar, but its deep bench is relevant when it comes to capitalizing on the Inflation Reduction Act because the legislation is itself broad.

Adding to the allure of NZUS is that, as its name implies, the fund is a credible option for investors looking for exposure to trends unlocked by the Paris Climate Agreement.

“While the U.S. is the latest country to make great strides toward affecting change, many parts of the world are embracing renewables and developing clean technologies. A significant impetus behind the shift from fossil fuels to renewables is an international desire to lower the global carbon footprint as established in the landmark Paris Agreement,” added S&P Dow Jones.

While NZUS is dedicated to domestic stocks, many of the ETF’s member firms are multi-national companies that can or are already involved with various sustainability concepts around the world. Still, investors could derive benefits from the domestic exposure featured in NZUS and the Inflation Reduction Act could highlight that opportunity set.

“If we focus on the U.S. again, it is compelling to examine the role that renewables are already playing in electricity generation, accounting for 21% in 2021 as reported by the EIA. The EIA is further forecasting that renewables will overtake all other energy sources, contributing 44% of new capacity by 2050,” concluded S&P Dow Jones.

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.