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With president-elect Donald Trump promising to cancel the landmark Paris deal and stimulate coal production once he takes office in January, the prospects of clean energy are far from being encouraging. Not only has Trump called climate change a hoax created by China, he has pledged to remove Obama’s Clean Power Plan. Although this spells good news for VanEck Vectors Coal ETF that tracks the global coal industry, it has dimmed the future of clean energy-related ETFs (read: 6 Stocks & ETFs to Avoid on Trump's Win).
Last year, 195 countries came together to ink a historic agreement on climate change - the Paris agreement. The move had been spearheaded by Obama and Chinese Premier Xi Jinping. As per the deal, developed countries including the U.S. and European Union will provide developing nations with a minimum of $100 billion a year to help them counter climate change. Developing nations, on their part, will have to finds methods to reduce emissions. This deal gave a push to the renewable energy sector. Thus, the termination of such a deal could hurt the clean energy stocks.
Investors should note that Trump’s stand may have an adverse effect on clean energy investing. Oil price is also likely to be a major influence. Lower price of oil could act a deterrent to the development of clean energy, which is costlier. So, its fate is linked to oil price movement. All eyes will be on the OPEC meet wherein an output curb deal can well be cut this month (read: Oil to Stay "Lower for Longer"? Short Oil & Energy ETFs).
Even though the outlook for clean energy investing looks uncertain with Trump in power and volatile oil price, the depletion of fossil fuel reserves, new and advanced technologies, and more competent alternative energy applications have made clean power more feasible, thus injecting optimism into the sector. Yet investors should closely track political factors like eco-friendly mandates and renewable energy agendas to see if potential benefits spill over to clean energy companies and sector ETFs.
ETFs to Tap the Sector
For investors seeking to play this trend in the ETF form, the following clean energy ETFs could be interesting picks.
PowerShares WilderHill Clean Energy Portfolio (PBW - Free Report)
Launched in March 2005, PBW tracks the WilderHill Clean Energy Index and manages an asset base of $87 million, which it invests in a portfolio of 38 stocks. It has a definite tilt towards Information Technology, which takes the top spot with a 40.3% allocation followed by Industrials (28.1%) and Utilities (15.5%). The fund’s top 10 holdings jointly contribute 36.8%. It charges a hefty 70 basis points in fees (read: What Lies Ahead for Alternative Energy ETFs?).
Market Vectors Global Alternative Energy ETF
Launched in May 2007, GEX tracks the Ardour Global Index Extra Liquid, focusing on companies that are primarily engaged in the business of alternative energy comprising solar power, bio energy, wind power, hydro power and geothermal energy.
The fund holds about 31 stocks in its basket, has assets under management of $75.4 million and charges an expense ratio of 62 basis points annually.
From a sector perspective, Industrials and Information Technology take the largest share with a respective 52.9% and 22.7%. Further, the fund’s top 10 holdings jointly contribute 63.6% to the fund.
This ETF tracks the S&P Global Clean Energy Index with 30 holdings and an asset base of $70.8 million. ICLN charges investors 48 basis points a year for the exposure. ICLN is more inclined toward Renewable Electricity, representing 28.6% of the fund, though Heavy Electrical Equipment receives a big chunk as well (13.4%). The fund appears highly concentrated on the top 10 holdings with a share of 54.1% (see all Alternative Energy ETFs here).
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)
This ETF tracks the NASDAQ Clean Edge Green Energy Index and follows a benchmark of clean energy companies, giving exposure to 38 such companies in total with an asset base of $51.8 million. The fund charges investors 60 basis points a year for the exposure. The top 10 holdings comprise 58.3% of the total fund. Technology firms dominate this ETF, accounting for 31.5% of the assets, followed by Industrials (30%) and Oil and Gas (16.2%).
PowerShares Global Clean Energy Portfolio (PBD - Free Report)
This ETF follows the WilderHill New Energy Global Innovation Index, giving investors exposure to about 94 companies that are engaged in renewable sources of energy and technologies facilitating cleaner energy. Assets under management are worth $52.6 million and expense ratio is 77 basis points a year. The fund’s top 10 holdings contribute 19.8% to it. PBD is heavy in Utilities (31.9%) and Industrials (31.5%), followed by Information Technology with 26% exposure.
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Future of Clean Energy ETFs in Trump Era
With president-elect Donald Trump promising to cancel the landmark Paris deal and stimulate coal production once he takes office in January, the prospects of clean energy are far from being encouraging. Not only has Trump called climate change a hoax created by China, he has pledged to remove Obama’s Clean Power Plan. Although this spells good news for VanEck Vectors Coal ETF that tracks the global coal industry, it has dimmed the future of clean energy-related ETFs (read: 6 Stocks & ETFs to Avoid on Trump's Win).
Last year, 195 countries came together to ink a historic agreement on climate change - the Paris agreement. The move had been spearheaded by Obama and Chinese Premier Xi Jinping. As per the deal, developed countries including the U.S. and European Union will provide developing nations with a minimum of $100 billion a year to help them counter climate change. Developing nations, on their part, will have to finds methods to reduce emissions. This deal gave a push to the renewable energy sector. Thus, the termination of such a deal could hurt the clean energy stocks.
Investors should note that Trump’s stand may have an adverse effect on clean energy investing. Oil price is also likely to be a major influence. Lower price of oil could act a deterrent to the development of clean energy, which is costlier. So, its fate is linked to oil price movement. All eyes will be on the OPEC meet wherein an output curb deal can well be cut this month (read: Oil to Stay "Lower for Longer"? Short Oil & Energy ETFs).
Even though the outlook for clean energy investing looks uncertain with Trump in power and volatile oil price, the depletion of fossil fuel reserves, new and advanced technologies, and more competent alternative energy applications have made clean power more feasible, thus injecting optimism into the sector. Yet investors should closely track political factors like eco-friendly mandates and renewable energy agendas to see if potential benefits spill over to clean energy companies and sector ETFs.
ETFs to Tap the Sector
For investors seeking to play this trend in the ETF form, the following clean energy ETFs could be interesting picks.
PowerShares WilderHill Clean Energy Portfolio (PBW - Free Report)
Launched in March 2005, PBW tracks the WilderHill Clean Energy Index and manages an asset base of $87 million, which it invests in a portfolio of 38 stocks. It has a definite tilt towards Information Technology, which takes the top spot with a 40.3% allocation followed by Industrials (28.1%) and Utilities (15.5%). The fund’s top 10 holdings jointly contribute 36.8%. It charges a hefty 70 basis points in fees (read: What Lies Ahead for Alternative Energy ETFs?).
Market Vectors Global Alternative Energy ETF
Launched in May 2007, GEX tracks the Ardour Global Index Extra Liquid, focusing on companies that are primarily engaged in the business of alternative energy comprising solar power, bio energy, wind power, hydro power and geothermal energy.
The fund holds about 31 stocks in its basket, has assets under management of $75.4 million and charges an expense ratio of 62 basis points annually.
From a sector perspective, Industrials and Information Technology take the largest share with a respective 52.9% and 22.7%. Further, the fund’s top 10 holdings jointly contribute 63.6% to the fund.
iShares Global Clean Energy ETF (ICLN - Free Report)
This ETF tracks the S&P Global Clean Energy Index with 30 holdings and an asset base of $70.8 million. ICLN charges investors 48 basis points a year for the exposure. ICLN is more inclined toward Renewable Electricity, representing 28.6% of the fund, though Heavy Electrical Equipment receives a big chunk as well (13.4%). The fund appears highly concentrated on the top 10 holdings with a share of 54.1% (see all Alternative Energy ETFs here).
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)
This ETF tracks the NASDAQ Clean Edge Green Energy Index and follows a benchmark of clean energy companies, giving exposure to 38 such companies in total with an asset base of $51.8 million. The fund charges investors 60 basis points a year for the exposure. The top 10 holdings comprise 58.3% of the total fund. Technology firms dominate this ETF, accounting for 31.5% of the assets, followed by Industrials (30%) and Oil and Gas (16.2%).
PowerShares Global Clean Energy Portfolio (PBD - Free Report)
This ETF follows the WilderHill New Energy Global Innovation Index, giving investors exposure to about 94 companies that are engaged in renewable sources of energy and technologies facilitating cleaner energy. Assets under management are worth $52.6 million and expense ratio is 77 basis points a year. The fund’s top 10 holdings contribute 19.8% to it. PBD is heavy in Utilities (31.9%) and Industrials (31.5%), followed by Information Technology with 26% exposure.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>