The renewable energy transition is already well underway, but it’s still in its early innings, indicating that related investing strategies still offer long-term potential.
Among exchange traded funds, the Goldman Sachs Bloomberg Clean Energy Equity ETF (GCLN) is a consideration for investors looking to capitalize on what’s likely to be a long-running, capital-intensive transition to clean energy.
Home to 183 stocks, GCLN has one of the deepest benches in this fund category and focuses on “clean energy enablers,” positioning the ETF to be a beneficiary of elevated expenditures across a variety of renewable energy categories. Importantly, GCLN could ultimately prove to be a compelling long-term idea.
“We don’t think market prices fully reflect the transition’s risks and opportunities yet. We believe companies that are prepared for the transition and more able to seize its opportunities should continue to benefit relative to others over time,” according to BlackRock research.
A vital element in clean energy evolution is moving beyond policy dependence and getting to the point where private industry keeps with and anticipates a rapidly shifting technological landscape. With the aforementioned deep portfolio, GCLN answers that call — a notion further confirmed by an almost 21% weight on technology stocks.
“The transition could accelerate from the path implied by current policy — as technology develops, societal preferences shift and the economic and human costs of physical climate damage become more evident. But there could be regional differences in pace. We believe the Ukraine war may have accelerated the transition in Europe, where energy security and affordability objectives are aligned with transitioning to net-zero emissions, but it has not had the same effect in other regions,” added BlackRock.
As it pertains to renewable energy, technology is a pivotal part of the equation because as technological capabilities advance, costs decline and that’s clearly a favorable scenario for GCLN components. That’s all the more relevant to investors mulling GCLN because the Goldman Sachs ETF allocates 40% of its weight to utility stocks.
Utilities are boosting their renewable energy exposure, but that costs money. The more those costs decline, the better it is for those firms.
“First, technological progress is driving down the cost of switching from carbon-intensive to alternative energy sources. It is making low-carbon technology, especially solar power and batteries, cheaper — albeit with some recent reversal due to supply chain and labor costs. Plus, expected innovation in currently hard-to-abate sectors, like heavy industry and transport (steel, cement, shipping, aviation, etc.), could also help significantly reduce overall emissions in the years ahead,” concluded BlackRock.
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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.