Though the broader market benefited from the Trump rally, one segment of the equity market that was thought to come under pressure was alternative energy ETFs or green ETFs. Instead of bolstering the renewable sector with a stimulus package, the President promised to revive coal.
In fact, keeping his campaign promise, Trump pulled America out of the landmark Paris climate change agreement last year, which was expected to bring an end to the fossil fuel era (read: Trump Exits Paris Climate Deal: ETFs to Gain & Lose).
But several green or clean energy ETFs have delivered decent gains for investors this year so far, unlike fossil-fuel ETFs. The best-performing energy ETF so far this year has been VanEck Vectors Coal ETF (KOL - Free Report) (up about 2.3%) while the top performance from the green space came from PowerShares Cleantech Portfolio (PZD - Free Report) (up 4.5%). In contrast, Energy Select Sector SPDR Fund (XLE - Free Report) has declined down about 6.5% this year.
For obvious reasons, green energy funds are worth a look on the occasion of St. Patrick's Day – a day associated with the color green.
Inside the Rise of Green Energy
Helped by growing debt financing for climate-related projects, wind power emerged as one of the fastest-growing green industries.
Clean energy is a key contributor to the electrical grid. U.S. Energy Information Administration (EIA) estimated that 50% of about 25 gigawatts (GW) of new utility-scale electric capacity added to the power grid during 2017 came from wind and solar sources.
Coming to solar energy, market watchers are optimistic on this space in spite of Trump administration’s recent decision to impose a 30% tariff on imported solar equipment. According to an article published on Greentech Media, solar power-purchase agreements have been registering a decline in price (read: Trump's Import Tariffs: ETF & Stocks in Focus).
The article went on to state that the cost of capital for solar projects will likely remain low as investors shift to this asset class for reasons such as, “1) stocks are overvalued and investors are looking to diversify; 2) solar asset investments are non-correlated to other assets; 3) and long-dated; 4) U.S. solar assets are dollar-denominated; and 5) sovereign wealth funds, pension funds and insurance companies increasingly must comport with client demands, and internal mandates, to invest in more sustainable assets like solar.”
China has been putting in immense efforts to harness renewable energy. China’s total investment in clean-energy projects was more than $44 billion in 2017, up from $32 billion in 2016. The country is emerging as a green energy hotspot and even closed 40% of its factories that did not conform to emissions regulations.
Below we highlight two clean energy ETFs and stocks that have been on a tear this year so far (see all alternative energy ETFs here).
ETFs to Play
PZD in Focus
The fund holds cleantech companies, which produce any knowledge-based product or service that improves operation, performance, productivity or efficiency, while reducing costs, inputs, energy consumption, waste or pollution. Industrial (54.29%) and Technology (28.87%) are the top two sectors. The United States makes up half of the portfolio.
iShares Global Clean Energy ETF (ICLN - Free Report)
The fund tracks the performance of approximately 30 of the most liquid and tradable global companies, which represent the listed clean energy universe. The United States and China make up more than 50% of the fund. Renewable Electricity, Semiconductor Equipment and Electric Utilities are the top three industries the fund is invested in. The fund is up about 2.9% so far this year.
Stocks to Play
Renewable Energy Group Inc. (REGI - Free Report)
The Zacks Rank #1 (Strong Buy) company produces and sells biofuels and renewable chemicals in the United States. The stock has a VGM Score of B.
SolarEdge Technologies Inc. (SEDG - Free Report)
The Zacks Rank #1 company provides inverter solutions. The stock has a VGM Score of C.
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