Joe Biden is all set to swear in as the 46th president of the United States, as declared by the Electoral College last week. The broader markets have been hailing this election outcome, as evidenced by the S&P 500’s and Nasdaq composite’s 1.6% and 3.2% gains, respectively, over the past five days.
The clean energy industry is poised to be the biggest beneficiary of the incoming administration, given Biden’s ambitious plans to make the U.S. a carbon neutral economy by 2050. Biden has also verbalized his intention to rejoin the Paris Accord to cooperatively combat one of the biggest threats to mankind. The Democratic Party’s victory in winning control of the U.S. Senate should act as a catalyst to this process because it suggests easier bill approvals.
While the U.S. is currently dealing with a mass COVID-19 vaccination drive, it is expected that the country’s economic recovery from the 2020 recession will be partly driven by growth in the clean energy industry. With hefty capital inflows and strong demand, the clean energy industry faces the prospect of sustainable growth over the long term.
ETFs such as First Trust ISE Global Wind Energy Index Fund (FAN), Invesco Solar ETF (TAN), ALPS Clean Energy ETF (APES) and Global X YieldCo & Renewable Energy Income ETF (YLCO) provide all-round exposure to the clean energy industry, covering all types of renewable energy. With Biden’s plans to make the U.S. a leading country driving the clean energy revolution globally, we think these ETFs should outperform the broader markets in the years to come.
First Trust ISE Global Wind Energy Index Fund (FAN)
As the name suggests, FAN invests 60% of its total assets in the “pure play” companies operating in the wind industry. Remaining 40% is allocated to companies that have more diverse operational structures that are linked to the clean energy industry. The fund has an MSCI ESG rating of AA, indicating strong governance and financial stability, with focus on environmental issues. In terms of peer rank, FAN is ranked in the 95th percentile within its peer group, reflecting its dominating position in the clean ETF industry.
With $484.80 million in assets under management, the ETF’s top holdings are Siemens Gamesa Renewable Energy, S.A. (SGRE), Vestas Wind Systems A/S (VWS) and Orsted (ORSTED). These three companies combined account for over 26% of FAN’s total portfolio.
FAN has an expense ratio of 0.62%, in line with its category average. The ETF has gained 73.7% over the past year and 65.3% over the past six months. FAN pays $0.20 in dividends annually, yielding 0.8% at its current price. Its four-year average dividend yield is 3.3%.
How does FAN stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
In the 116-ETF Global Equities ETFs group, it is currently ranked #12.
Invesco Solar ETF (TAN)
TAN is focused exclusively on the solar energy sector. It invests in “pure play” and “medium play” solar companies. While the former generates more than two-thirds of its total revenue from the solar segment, medium play companies generated approximately one-third of their revenue from this segment. TAN has an MSCI ESG rating of A, reflecting a stable environmental, social, and corporate governance ecosystem.
TAN has an AUM of $4.64 billion and it closely tracks the MAC Global Solar Energy Index. The ETF’s major holdings are Enphase Energy, Inc. (ENPH), Sunrun Inc. (RUN) and SolarEdge Technologies, Inc. (SEDG). These three holdings account for 28.5% of TAN’s portfolio.
TAN has an expense ratio of 0.71%, which is higher than the category average of 0.63%. It has gained 256.7% over the past year and 179.5% over the past six months. The ETF pays $0.09 annually, yielding 0.08% at its current price. TAN’s four-year average dividend yield is 0.08%.
It’s no surprise that TAN is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade. It is currently ranked #2 of 39 ETFs in the Energy Equities ETFs group.
ALPS Clean Energy ETF (APES)
ACES is a relatively broader ETF, investing in companies operating in any segment of the clean energy industry. It targets companies based out of the U.S. or Canada. With an MSCI rating of ‘A’, ACES falls in the 56th percentile among its peer group.
It closely tracks the performance of its benchmark, the CIBC Atlas Clean Energy Index. It has approximately $1.03 billion in assets under management, with a major stake in Plug Power Inc. (PLUG), Sunrun Inc. (RUN) and Enphase Energy Inc. (ENPH).
ACES has an expense ratio of 0.65%, slightly higher than category average of 0.63%. It has gained 175.9% over the past year and 125.8% over the past six months. The ETF pays $0.12 annually, yielding 0.12% at the current price. Its four-year average dividend yield is 1.15%.
ACES’ POWR Ratings reflect this bullish outlook. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade. It is currently ranked #12 in the Energy Equities ETFs group.
Global X YieldCo & Renewable Energy Income ETF (YLCO)
YCLO invests in companies that generateat least 50% of their revenues from the clean energy segment and have high yield rates. The ETF targets companies having a trailing 12-month yield of at least 2% or higher. It has approximately $98.20 million in assets under management and closely tracks the Indxx Global YieldCo Index. YLCO’s main holdings are Meridian Energy Limited (MEL), Brookfield Renewable Partners LP (BEP.UT) and EDP Energlas de Portugal SA (EDP), which accounts for more than 20% of its total portfolio.
YLCO has an expense ratio of 0.65%. This compares to the category average of 0.63%. With an MSCI rating of “AA”, YLCO is ranked in the 90th percentile among its peer group. It has gained 28.8% over the past year and 36.2% over the past six months. The ETF pays $0.50 as dividends annually, yielding 2.59% at the prevailing price. YLCO’s four-year average dividend yield is 4.15%.
YLCO has a “Strong Buy” POWR Rating, with an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Industry Rank. It is currently ranked #31 in the Global Equities ETFs group.
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FAN shares were trading at $25.18 per share on Wednesday afternoon, up $0.10 (+0.40%). Year-to-date, FAN has gained 8.07%, versus a 1.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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