Where should investors be looking right now as a busy summer for equities draws to an end? In a year when the equities train has refused to slow down despite headwinds, growthier options have prevailed. That said, investors shouldn’t ignore those challenges, like the lagging impact of rising rates and a possible recession. Instead, it may be time to revisit the growth potential of areas with strong tailwind trends, specifically the potential of a clean energy ETF.
From China to the United States, the various sectors that define clean energy tech have been a bright spot. In the latter, particularly, the Biden Administration’s Inflation Reduction Act (IRA) has directed significant tax credits and investments to clean energy. That totaled $132 billion in new investment, contributing to a broader boost to U.S. manufacturing.
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That overall investment, driven by the IRA and the existing market environment, has helped the U.S. even outpace famously environmentally-minded European green investment. Hydrogen technology particularly differentiated the U.S. and Europe, with the former leading the continent. Analysts pointed to the ease with which the IRA released investment as a key advantage for the U.S. compared to Europe.
Eyeing a Clean Energy ETF
Taken together, those factors should point investors towards a clean energy ETF like, for example, the ALPS Clean Energy ETF (ACES). ACES tracks the CIBC Atlas Clean Energy Index for a 55 basis point (bps) fee. The strategy looks for North American firms tied to renewable energy fuels, clean tech like EVs, batteries, or smart grids, and other clean technologies. ACES weights its holdings based on market cap with a 5% cap on individual stocks.
The strategy has added $10.5 million in net inflows over the last month and has outperformed its ETF Database Category and Factset Segment averages over the last five years. While it may have recently struggled somewhat performance-wise, it recently hit oversold territory per YCharts. Based on that metric, the clean energy ETF could be primed for a rebound.
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