It is an index fund and tracks the S&P Global Clean Energy Index which, until recently, held just 30 of the world’s leading companies in the clean energy sector. However, this concentrated portfolio was problematic and liable to significant imbalances. The index has now been expanded to allow up to 100 holdings and a new methodology provides a greater weighting to more liquid stocks.
Hopefully these changes should help to reduce the volatility.
Why Clean Energy?
Last August, the IPCC delivered their ‘Code Red’ warning pointing out how close we are to an irreversible global meltdown caused by the climate crisis.
The IEA have ruled out all new coal, gas and oil exploration/developments if we are to stay on track to limit global warming to 1.5C and get to net zero carbon emissions by 2050. The use of fossil fuels account for three-quarters of greenhouse gas emissions so we need to transition to alternative, cleaner forms of energy asap.
It is estimated that at least 50% of the world's energy will come from renewables such as solar and wind by 2050. This compares to around 7% in 2015. In order to implement the Paris Agreement and limit global warming to well below 2C, governments around the world will need to invest huge amounts of capital - estimated over $3 trillion - over the coming decade and this obviously provides significant opportunities for the renewables industries.
The ETF fund holdings include :
Plug Power (4.6%) a leading provider of fuel-cell engines and green hydrogen-based solutions in the US. Some high profile customers include Amazon, BMW, IKEA, Walmart and Carrefour.
Enphase (8.4%) a global energy technology company and the world’s leading supplier of solar microinverters. these connect solar generation, storage and management on one intelligent platform.
Solaredge Technologies (5.7%) another Nasdaq-listed US company providing inverter solutions across all segments of the solar PV market.
Vestas Wind (8.3%) and Orsted (5.9%) both of which I also hold as a stand-alone investments in my portfolio
SSE (3.8%) the UK-based renewable energy company and listed on FTSE 100. It aims to deliver a five-fold increase in renewable energy output and reduce carbon emissions by 80% by 2030.
The fund had an amazing run...a couple of years back it moved from under £4.00 in March 2020 to reach a high point of £14.00 in mid February 2021 but there has been a significant pull-back over the past year with the share price falling to a low point of 740p last month. At the current price of 925p my total return has been -5.0% for the past year including a dividend yield of 0.8% and subject to exchange fluctuations. Total returns over the three years since purchase is 115%.
Clearly the decision by Putin to invade Ukraine on 24th February has sent shock waves around the world. It highlights how dependent the West has become on Russia’s oil and gas. We know we need to move away from fossil fuels to address the climate crisis and this just adds more urgency to the need to move to alternative forms of clean energy.
I am hoping the pick up in recent weeks is a sign of some consolidated upward momentum after such a good run but this is an emerging sector and I am prepared for some further volatility. However, over the longer term, my view is that the global renewable energy sector is likely to see continued growth as the world attempts to address the climate crisis and move to curb carbon emissions. We are weaning our economies off fossil fuels and the transition to clean energy such as wind, solar and wave power is well underway and likely to accelerate.
I have taken a punt on a few individual companies such as Orsted, Ceres Power and Vestas Wind for example but a diversified approach with the likes of this ETF probably makes more sense so I am very happy to continue holding these shares which currently make up the largest element of my green portfolio currently around 12%.
As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!