Clean energy ETFs are a long-term play, with the current environment offering a good entry point for buy-and-hold investors.
Despite a very constructive policy background, clean energy ETFs have struggled in 2023. Clean energy technology tends to be very sensitive to interest rates, causing the segment to struggle as the Federal Reserve has lifted rates to a 22-year high.
It’s important to recognize the long-term opportunities for clean energy ETFs despite the current headwinds. U.S. Congress last year passed the Inflation Reduction Act (IRA) of 2022, marking the country’s most significant climate legislation. The law directs at least $369 billion toward incentives encouraging the adoption of renewable energy and other low-carbon technologies.
With clean energy ETFs down significantly year to date, now is an ideal time to buy into the space while prices are discounted. Alternatively, investors who already own a clean energy ETF can sell out of current positions to harvest losses and adjust their exposure to the space.
A Clean Energy ETF to Consider
The ALPS Clean Energy ETF (ACES) is a compelling fund in the clean energy ETFs space. ACES delivers exposure to North American companies involved in the clean energy sector including renewables and clean technology. This includes companies that provide the products and services that enable the evolution of a more sustainable energy sector.
ACES provides exposure to a variety of clean energy segments. The segments represented include: solar, electric vehicles, wind, hydro-geothermal, bioenergy, energy management and storage, and fuel cell/ hydrogen.
For investors who already own a clean energy ETF such as the iShares Global Clean Energy ETF (ICLN), ACES may help finetune exposure. ACES offers a more concentrated portfolio, holding 45 securities as of November 16. Meanwhile, ICLN comprises 102 securities. However, while ACES provides exposure to a broad range of clean energy segments, ICLN focuses on companies that produce energy from solar, wind, and other renewables.
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