The recently passed Inflation Reduction Act contains a veritable cornucopia of renewable energy, and the related equities and exchange traded funds recently reflected as much.
Among that group is the Goldman Sachs Future Planet Equity ETF (GSFP). Like other renewable energy and clean technology ETFs, GSFP is proving responsive to the Inflation Reduction Act becoming law, as highlighted by a solid 4.50% gain over the past month.
“Clean energy, the circular economy, electric vehicles and other green technologies have long been areas in which the US has lagged Europe and China, where adoption rates are higher and innovation has been stronger. Although many green technologies are now economically viable even without government subsidies, this shift in focus by the US government will add further impetus to the ongoing global transformation and will help ensure that the US is energy self-reliant in the future,” according to a recent note from Goldman Sachs Asset Management (GSAM).
As noted above, an array of renewable energy ETFs, including GSFP, are getting a lift from the aforementioned legislation. That doesn’t mean that all those funds are equally levered to the Inflation Reduction Act. In fact, GSFP stands as a case study as to why it’s crucial for investors to look under the hood rather than blindly buying ETFs based off names alone.
Obviously, the Inflation Reduction Act contains plenty of spending for solar, wind, and green banks — themes that GSFP has a 21.1% weight to, according to issuer data. But there’s more for investors to consider. For example, the bill features tax credits for the manufacturing of electric vehicles and the purchase of those cars. GSFP’s related exposure is a third of its lineup.
Additionally, 8% of the ETF’s roster is levered to spending aimed at cutting agriculture emissions. More than 13% of the GSFP portfolio has inroads to spending aimed at crediting consumers for purchasing energy-efficient appliances. Bottom line: GSFP has a concentrated lineup, but it’s arguably one of the most versatile ETFs in this category.
“In our view, the underlying economics are the true drivers of the secular growth story. In fact, thanks to the rapid pace of disruption in the space, cost curves have been already coming down drastically – the renewables and electric vehicle (EV) battery space are powerful examples in this context – and we are convinced the thematic opportunities we are targeting will profoundly change the way we live, work and consume not just because of a supportive policy backdrop, but simply because the economics have started to make sense,” concluded GSAM.
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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.