Investors considering exchange traded funds focusing on renewable energy equities have multiple points to evaluate.
Those include geographic and industry exposure, depth, fees, weighting methodologies, and more. One of the funds in this category that checks a lot of boxes in positive fashion is the ALPS Clean Energy ETF (ACES).
One of the points in favor of ACES is that many of its holdings are innovators in their respective industries, including solar and wind.
“Solar energy output could supply as much as 40% of the country’s electricity within the next 15 years, according to the U.S. Energy Department,” says David Kastner of Charles Schwab. “Better solar and wind storage systems developed by various companies already allow more of us to harness the power generated on our own rooftops—rain or shine.”
Another issue for investors to consider when evaluating a fund like ACES is how government policies and investor demand are affecting and potentially creating clean energy trends.
“Amid public insistence and global agreement, more government funding for clean-energy incentives and mandates is on the way. Regulations aside, many companies are already pivoting toward more environmentally friendly practices in response to consumer and investor demand,” adds Kastner.
ACES, which tracks the CIBC Atlas Clean Energy Index, is home to several companies that are credible innovators and disruptors, including plenty in the solar and wind spaces. Those industries combine for nearly half the fund’s weight. That’s relevant to investors because those are among the groups driving renewable energy and clean tech innovation.
“Solar and wind companies are developing new technologies to make renewable energy less expensive and more efficient, and new energy sources (such as green hydrogen, which is made with water) may be added to the mix,” notes Kastner.
Another key for investors is to avoid getting caught up in the hoopla that often surrounds renewable energy investing. Yes, there’s growth to be had here, and spending expectations are jaw-dropping, but it’s best to take a long-term view of this industry.
“Be sure to separate those companies that are walking the walk from those that are merely talking the talk—or investigate mutual funds or ETFs that do it for you. Consulting current research from reputable sources, as well as paying attention to news and trends in the clean energy space, can help you evaluate the opportunities outlined above based on your own priorities and appetite for risk,” concludes Kastner.
Other renewable energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
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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.
