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Earth’s temperature has risen drastically in the last few decades with the years 2014-2018 representing the five hottest years globally. This is a cause of grave concern. The climate warming emissions are causing havoc which is costing us dearly. 2018 alone saw 14 weather and climate related disasters that resulted in 247 known fatalities, and their total costs were estimated to be about $91 billion.
In the backdrop of pressing issues of climate change and environmental concerns, renewables have emerged as a ray of hope. The segment of renewable energy has garnered support from governments, corporates and investors.
Here’s a look at some of investing opportunities in the renewable energy space.
For ages, fossil fuels have been our primary source of energy, playing a very significant role in industrialization and advancement of countries worldwide. On the flip side, they have added to pollution and toxins to all components of the environment. Despite the ill-effects of its usage, and rising awareness, it has not been easy to move away from fossil fuels towards alternative sources given the deep penetration levels that they have in our day-to-day lives.
However, that process has begun.
The concerns about climate change brought countries across the globe together to sign the Paris Agreement in December 2015. Not just governments but even end users and corporates are showing commitment towards the cause. A recent survey by Deloitte reveals how consumers see renewable energy; 53% of all residential survey respondents indicated that it is very important to them that part of their electricity supply comes from renewable sources while about 48% of business respondents are working to procure more electricity from renewable sources.
Last year, MidAmerican Energy Company, a subsidiary of Berkshire Hathaway (BKS-A, BKS-B) Energy announced that it was on its way to source 100% of its customers electricity needs from renewable energy by 2020. AWS (AMZN) has been working achieve its goal of 100% renewable energy usage for its global infrastructure footprint. By January 2018, AWS achieved 50% renewable energy usage.
Last year, Apple (AAPL) announced that it achieved 100% clean energy globally for its retail stores, offices, data centers and co-located facilities in 43 countries. Likewise, giants such as Google (GOOG, GOOGL), Facebook (FB) and Microsoft (MSFT) have been promoting cleaner energy for a greener future.
The demand for renewables is showing an uptrend. The IEA Renewables 2018 report estimates that renewables will continue their expansion in the next five years, covering 40% of global energy consumption growth. It is projected that renewables will account for almost a third of total world electricity generation in 2023. During 2018, global clean energy investment totaled $332.1 billion in 2018 according to a report by BloombergNEF with China and the U.S. among the top nations investing in green energy.
Here are the top exchange traded funds which provide a convenient, and efficient route to companies operating in the renewable energy space.
Launched in 2008, Invesco Solar ETF (TAN) tracks the MAC Global Solar Energy Index and offers an opportunity to invest in companies in the solar energy industry across seven countries. It has a compact portfolio of 22 companies with around 35.11% in the top five holdings. The ETF has close to $300 million as assets under management (AUM) and its geographical portfolio is weighted towards the U.S. and China.
The iShares Global Clean Energy ETF (ICLN) provides an exposure to 30 companies that produce energy from solar, wind, and other renewable sources. The ETF diversifies the portfolio across nine nations, with the U.S., China and New Zealand having a combined allocation of almost 70%. Launched in 2008, it has $204.04 million as assets under management. The ETF tracks the S&P Global Clean Energy Index and currently has a sub 30% allocation towards the top five holdings.
Next is the Invesco WilderHill Clean Energy ETF (PBW). The fund was launched in 2005 with 90% of its portfolio based on the WilderHill Clean Energy Index. Its investing space is diversified across five sectors, namely, information technology, industries, utilities, materials, consumer discretionary and energy. The ETF has a portfolio of 39 holdings with $122 million as assets under management. The top five holdings have a 21.42% allocation while the top ten stock holdings have a 37.82% allocation.
Launched in 2007, First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) tracks the Nasdaq Clean Edge Green Energy Index (CELS). CELS primarily consists of companies which are manufacturers, developers, distributors, or installers of clean-energy technologies. With almost $100 million as assets under management, the ETF has a 34.91% allocation in the top five holdings—ON Semiconductor Corp, Albemarle Corp, Tesla Inc., Universal Display Corp and Hexcel Corp.
Next is the VanEck Vectors Global Alternative Energy ETF (GEX) that tracks the Ardour Global IndexSM Extra Liquid (AGIXLT). Its portfolio comprises of 31 stocks belonging to the segment of alternative energy such as bio-fuels, bio mass, wind, solar, hydro and geothermal sources. The fund is diversified geographically across ten countries with the U.S. having the highest weightage of 66.62%.
Some of the other ETFs within this segment are Energy Index Fund ETF(FAN), Invesco Global Clean Energy ETF (PBD), Alps Clean Energy ETF (ACES), Global X YieldCo & Renewable Energy Income ETF (YLCO), and SPDR Kensho Clear Power ETF (XKCP).
While these ETFs aren’t designed to represent the core of an investor's portfolio, there is a strong case for including them as part of portfolio diversification.