With renewable energy taking center stage in policy debates and disrupting power consumption and generation, investors should consider various opportunities among ETFs geared to capitalize on these seismic shifts.
Enter the First Trust Global Wind Energy ETF (FAN). FAN, which is higher by almost 20% this year, seeks investment results that correspond generally to the price and yield of an equity index called the ISE Clean Edge Global Wind EnergyTM Index. There are strong fundamentals supporting that move.
“IHS Markit tracked 62.5 GW of new wind installations in 2019, 22% higher than the year before. While over 90% of this was in onshore, the offshore sector also remained bullish with annual installations growing by 45%,” said the research firm in a note out Thursday.
Environmental, social, and governance (ESG) is becoming an integral part of the investment space and as more investors clamor for funds that hone in on these initiatives, ETF providers are scrambling to give the people what they want. One of these areas is alternative energy, which will allow ETFs that center on wind and solar power to come into focus.
FAN components “are identified as providing goods and services exclusively to the wind energy industry are given an aggregate weight of 66.67% of the index. Those companies determined to be significant participants in the wind energy industry despite not being exclusive to such industry are given an aggregate weight of 33.33% of the index. This weighting is done to ensure that companies that are exclusive to the wind energy industry, which generally have smaller market capitalizations relative to their multi-industry counterparts, are adequately represented in the index,” according to First Trust.
Adding to the case for FAN is that wind power installations are increasing around the world, not just in a single market.
“Installations in Asia Pacific, Europe, and North America grew by 15%, 38%, and 42% respectively in 2019, while contracting in other regions. Nearly 60% of all new installations were in mainland China and the United States where imminent subsidy expiries have resulted in a connection rush. These markets are expected to continue driving global wind growth till 2021, in turn significantly benefiting turbine suppliers with a strong presence there,” according to IHS Markit.
Vestas, which accounts for 10.28% of FAN’s roster, is a dominant player in the wind turbine market.
“Vestas held on to the top spot leveraging its global footprint, while SGRE surged to second place on the back of strong offshore installations,” according to IHS Markit. “Installations of GE, Goldwind, and Envision were driven by their home markets, while the ongoing boom in mainland China also enabled local OEMs including Windey, Shanghai Electric, and Dongfang Electric to climb the ranks. In contrast, other regionally focused OEM’s like ENERCON and Suzlon saw installations plummet due to ongoing challenges in Germany and India respectively.”
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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.