With the Inflation Reduction Act now law, it’s an appropriate time for market participants to ponder not only a new wave of renewable energy spending, but how those expenditures will propel earnings growth for related companies.
Plenty of exchange traded funds are levered to that theme, and one that’s vying for pole position is the Goldman Sachs Future Planet Equity ETF (GSFP).
GSFP, which is actively managed and focuses on companies at the forefront of carbon reduction advancements, could be at the right place at the right time as a fresh, massive spate of green energy spending.
“The stock market has rewarded companies with Green Capex and can continue to do so, in our view. We have witnessed equity outperformance from Green Capex-exposed companies reinvesting a rising percent of cash flow in capex and research & development, and the ‘Greenablers’ where increased reinvestment will be needed more urgently due to project lead times,” according to Goldman Sachs Asset Management (GSAM).
GSFP is highly relevant on the earnings growth front because its member firms are positioned from climate-related expenditures, but there’s more to the story. Companies across various industries are waking up to the fact that investments in clean energy and carbon-reducing technologies can pay dividends in the form of improved earnings quality and visibility.
“It is important to remember that companies investing in Green Capex reduce not only their emissions, but the emissions of their customers. As such, we expect firms making incremental Green Capex investments to see durable demand for their products and long-term earnings growth. In certain sectors, such as utilities, we already see direct relationships between carbon reduction targets and earnings growth,” added GSAM.
Bolstering the long-term case for GSFP is that it’s actively managed and several of its member firms already possess inroads to multiple areas of the renewable energy revolution. That versatility could reward investors over the long term.
“Importantly, the path to net zero will require breakthroughs across multiple green technologies, as decarbonizing harder-to-abate emissions (eg, emissions in industrial processes, long-haul transport) require solutions that are still relatively nascent and expensive to implement. As has been seen across multiple sectors from semiconductors to shale to solar, greater investment and innovation can lead to lower costs,” added 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.