Renewable energy stocks and related exchange traded funds are encountering some headwinds this year as ebullience from the 2020 election cycle has long since worn off.
Further hindering these assets is talk that some countries transitioned too rapidly to clean energy and that they are contributing to higher oil and natural gas prices as a result. Those criticisms aren’t off base, but the ALPS Clean Energy ETF (ACES) remains a credible long-term idea.
While ACES member firms are scuffling this year, there’s fuel for the renewable energy investment fire as highlighted by investors’ willingness to allocate capital to startups in this space.
“Crunchbase, which tracks venture capital investments, has reported that clean-energy startups so far this year have taken in $11 billion, nearly double the $5.6 billion they attracted for all of 2020. Ironically, many renewable energy startups owe their continuing existence to the companies they are supposed to replace: Large oil and gas companies,” reports Alex Kimani for OilPrice.com.
ACES, which provides exposure to solar, wind, efficiency, LED, and smart grid companies, among others, obviously holds shares of companies that are already public, not startups. However, the enthusiasm for young clean energy firms is relevant to investors considering ACES because this optimism indicates that some professional investors and old guard energy companies are bullish on clean energy’s long-term prospects.
Interest in investing in clean energy startups likely isn’t fleeting. The seeds of energy change are sown, and some companies, such as Greentown Labs, are matching startups with investors.
“Chevron Inc. (NYSE:CVX), BHP, Engie, and investment bank Tudor Pickering have all partnered with Greentown Labs in various capacities, including listening to technology pitches, viewing work by researchers, and providing commercialization advice. It’s a mutually beneficial relationship because established businesses gain from incubators by diversifying and distributing the risk of the energy transition while the startups benefit from their investment and expertise,” according to OilPrice.com.
While it may be a while before the new crop of renewable energy startups finds its way onto the ACES roster, the fund could be supported by a rebound in solar stocks — which account for almost 23% of its weight — a group that some Wall Street analysts believe is being unfairly repudiated this year.
Other renewable energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
For more news, information, and strategy, visit the ETF Building Blocks 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.
