Investors have seen quite a turnaround in the clean-energy sector over the past year – and not for the better.
Investor interest in renewable-energy companies has waned considerably since Joe Biden was elected President of the United States in late 2020. Back then, many clean-energy exchange-traded funds (ETFs) benefited from the bullishness that came with the commitment by Democrats to boost green-energy investment.
The popular iShares Global Clean Energy ETF (ICLN-Q), as one example, was up 141 per cent in 2020 alone. Several ETFs then launched in Canada starting in early 2021, looking to ride the green-energy wave.
Then the fervour started to fade as the Biden administration’s “Build Back Better” legislation “became more like ‘build back never’” – failing to gain traction, says Tim Nash, a financial planner and founder of Good Investing and the Sustainable Economist blog, which is focused on clean energy and sustainable investing.
Investors have also “largely forgotten about clean energy” amid the recent surge in oil prices and, in turn, energy equities, notes Ben Kleinberg, product manager with Inovestor Inc., a Montreal-based investment research company that tracks the ETF industry.
Mr. Nash argues that clean energy remains a strong, long-term opportunity as the world moves away from fossil fuels. “High energy prices are likely now encouraging faster adoption.”
Investors with a long-term conviction on clean energy, who can stomach some short-term volatility, have several ETFs to choose from in both Canada and the United States.
The go-to choice for many investors over the years has been the Nasdaq-listed ICLN. It provides diversified exposure with 98 stocks that include everything from utilities, like Canada’s Northland Power Inc., and manufacturers enabling the clean energy transition, such as Denmark’s Vestas Wind Systems.
ICLN, which tracks the S&P Global Clean Energy Index, was so popular in early 2021 that it had a r/wallstreetbets thread on Reddit, Mr. Nash says. However, the ETF – which has a management expense ratio (MER) of 0.42 per cent – ended last year down nearly 24 per cent and it is down 9 per cent so far this year. (All data from Morningstar as of June 28 close.)
Deteriorating market conditions in the sector didn’t stop the launches of several Canadian-listed ETFs in 2021 and into this year, including one from iShares bearing the same name as ICLN with the ticker XCLN-T.
“It’s really a clone of ICLN,” Mr. Kleinberg says, adding the Toronto-listed-version eliminates the need for Canadian investors to incur currency conversion costs. “It’s as diversified as you can have for a clean energy fund.”
XCLN is up about 2 per cent since its launch in April.
Other ETFs with similar exposure and ‘CLN’ tickers launched earlier this year, including Harvest’s Clean Energy ETF (HCLN-T), which includes 40 of the world’s largest clean energy companies by market capitalization. Its top holdings include solar and battery technology company Enphase Energy Inc, and Italian renewable energy provider ERG S.p.A.
With a 0.69 per cent MER, HCLN launched in January, 2021 – the same month as BMO’s Clean Energy Index ETF (ZCLN-T), which has a 0.4 per cent MER. HCLN is down 16 per cent so far this year, while ZCLN has dropped by about 6 per cent.
Another newbie is First Trust Nasdaq Clean Edge Green Energy (QCLN-T), launched in February. Based on a U.S.-listed version, it has a 0.75 per cent management fee, holds 65 stocks, and is down about 18 per cent over the past three months.
There’s also CIBC’s Clean Energy Index ETF (CCLN-NE), with 47 holdings, that was listed in November with a 0.35 per cent management fee, tracking CIBC’s Atlas Clean Energy Select Index. It’s down about 19 per cent this year.
“All of these have a healthy dose of utilities – though QCLN has a little more technology exposure,” Mr. Nash says, noting its tech sector allocation is 40 per cent compared with ICLN at about 38 per cent. Some of those tech holdings include SolarEdge Technologies Inc., and Plug Power Inc.
Other new Canadian-listed ETFs do offer different spins on clean energy – and their tickers too.
An example is AGF’s Global Sustainable Growth Equity ETF (AGSG-NE). Emulating a long-running mutual fund by the same name, it launched in 2020, making it one of the longest-running for this theme. With a 0.65 per cent MER, the actively managed ETF has 54 holdings across four sustainable themes, including clean energy, Mr. Nash notes.
“It’s really for people wanting exposure to green sectors” but concerned about clean energy’s need for U.S. legislation to spur growth, he adds.
AGSG had a strong 2021, up about 18 per cent, but is down about 28 per cent so far this year.
Another actively managed ETF is BMO’s Brookfield Global Renewables Infrastructure Fund ETF (GRNI-T), launched in March. With a 0.8 per cent management fee and 35 holdings, “it’s obviously more infrastructure-focused than others,” Mr. Kleinberg says.
Its top holdings include Orsted and National Grid Transco Plc., which are European utilities focused on renewables. GRNI is down about 6 per cent over the past three months.
Managed by Brookfield Public Securities, its portfolio is built using bottom-up security analysis, “offering different exposure” from ICLN and similar ETFs weighted largely by market capitalization, Mr. Kleinberg adds.
The ETFs mentioned earlier provide diversified, low-cost exposure to clean energy, which may not satisfy investors looking for exposure to specific types of clean energy, says David Kletz, portfolio manager at Forstrong Global Asset Management.
He suggests investors seeking more targeted strategy can look to First Trust Global Wind Energy ETF (FAN-A) and Invesco Solar ETF (TAN-A), both listed in the U.S.
The two funds posted strong returns in 2020, particularly TAN, which was up nearly 234 per cent. However, it has fallen off since, down about 25 per cent in 2021, and dropping 6 per cent so far this year. With 0.66 per cent MER, TAN’s growth is “liable to be bumpy” in the future given renewables account for about 11 per cent of global energy use and are likely to have a volatile growth arc as they slowly replace fossil fuels, he explains.
Alternatively, he says, investors can look to a more “controversial” clean energy source: nuclear.
“Yes, there are risks that don’t exist with solar and wind,” Mr. Kletz says, referring to nuclear waste and the potential for accidents like the Fukushima disaster in March, 2011.
One choice for investors is U.S.-listed Global X Uranium ETF (URA-A) with 50 stocks and a 0.69 per cent MER. URA was up nearly 58 per cent in 2021 but is down by about 15 per cent so far this year, following the trajectory of other clean-energy ETFs.
Still, the ETF may offer strong, long-term growth, Mr. Kletz says. “It’s not like we can flip a switch and renewables can soak up supply provided by fossil fuel,” he says. “So nuclear is likely to fill that gap.”