Peruse a list of 2019's best-performing non-leveraged exchange traded funds and you're likely to find plenty of alternative energy products. There are about dozen focused and diversified clean energy ETFs on the market today and at least two-thirds of that group posted 2019 gains of at least 40 percent.
A member of that fray is the iShares Global Clean Energy ETF (ICLN), a broad-based green energy product that jumped 44.3 percent last year. ICLN, which is one of the more seasoned clean energy ETFs at 11 and a half years old, provides broad-based exposure to multiple facets of a disruptive industry that's dramatically altering the way businesses and individuals consumer power.
Home to $451.2 million in assets under management, ICLN is the second-largest ETF in its category, trailing only a dedicated solar product. Speaking of solar power, that's exactly one of the concepts that energized alternative energy ETFs last year and could do so again in 2020. ICLN, which tracks the S&P Global Clean Energy Index, is levered to that theme.
“Global solar installations will continue double-digit growth rates into the new decade,” according to the new 2020 Global Photovoltaic (PV) Demand Forecast by IHS Markit. “New annual installations in 2020 will reach 142 gigawatts (GW), a 14 % rise over the previous year.”
ICLN isn't a dedicated solar ETF, but it doesn't lack for exposure to one of the most accessible, fastest-growing sources of clean energy. Over a third of the fund's weight is allocated to renewable energy names, including solar companies. Additionally, three of ICLN's top 10 holdings, including Solaredge Technologies (SDGE) and First Solar (FSLR), are solar firms.
ICLN's solar exposure doesn't end there. The fund devotes almost 27% of its combined weight to semiconductor and chip equipment makers. Some semiconductor makers are highly exposed to solar because n-type and p-type silicon wafers power solar cells. The intersection of chips and solar is well-documented, but that doesn't diminish the potential for ICLN's semiconductor holdings to boost the fund as solar adoption rises and that rising adoption is happening right now.
“The expected 142 gigawatts are seven times that of the entire capacity that had been installed by the start of the prior decade (20 GW in 2010),” notes Markit. “The growth has been substantial in terms of geographic reach as well. There were 7 countries with more than 1 GW of installed capacity in 2010, most of them confined to Europe. IHS Markit expects more than 43 countries to meet that threshold by the end of 2020.”
Courtesy: IHS Markit
Another well-known contributor to the ICLN case is governments, foreign and domestic, pushing for increased solar use. That theme is expected to expand this year.
“Installations are expected to grow 20% in 2020, consolidating the United States’ position as the world’s second largest market,” notes Markit. “California, Texas, Florida, North Carolina and New York will be key drivers of U.S. demand growth over the next five years.”
China, in its quest to damp some of the world's worst pollution, is driving ex-US solar use. That's meaningful for ICLN because the U.S. and China combine for 55 percent of the fund's geographic exposure.
“Solar demand in 2020 will be lower than historic installation peaks of 50 GW in 2017,” according to Markit. “Demand in China is in a transitional phase as the market moves towards solar being unsubsidized and competing with other forms of generation and there is some lingering uncertainty while awaiting the release of the new 14th Five-Year Plan to be announced next year.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.