COP26: Clean Energy Names to Watch

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COP26: Clean Energy Names to Watch

This Sunday President Biden along with other world leaders, business executives and activists will head to the U.N. Climate Change Conference – COP26 – in Glasgow, Scotland. Clean energy will garner lots of attention from this event over the next couple of weeks. Today we will check in with the top three US listed ETFs focused on alt-energy, each with at least $1 billion in assets under management.

Here’s how they’ve performed and their top five positions:

iShares Global Clean Energy ETF (ICLN):

Returns:

  • Year-to-date: -13.4 pct
  • 1-month: +9.1 pct

Holdings (symbol and percent weighting):

  • Vestas Wind System (VWS, 8.3 pct): Wind turbine solutions and services
  • Enphase Energy (ENPH, 7.1 pct): Residential and commercial solar power
  • Orsted (ORSTED, 5.6 pct): Wind and solar power
  • Consolidated Edison (ED, 5.4 pct): Electric, gas and steam service
  • Plug Power (PLUG, 5.4 pct): Hydrogen fuel cell systems

Invesco Solar ETF (TAN):

Returns:

  • Year-to-date: -8.3 pct
  • 1-month: +14.8 pct

Holdings (symbol and percent weighting):

  • SolarEdge Technologies (SEDG, 11.0 pct): Inverter solution for solar photovoltaic systems
  • Enphase (ENPH, 10.3 pct): Residential and commercial solar power
  • First Solar (FSLR, 7.1 pct): Solar energy solutions
  • Xinyi Solar (968 HK, 6.6 pct): Solar glass manufacturer
  • Daqo New Energy (DQ, 3.9 pct): Polysilicon manufacturer for use in solar systems

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN):

Returns:

  • Year-to-date: +3.4 pct
  • 1-month: +11.5 pct

Holdings (symbol and percent weighting):

  • Tesla (TSLA, 10.3 pct): Electric car company
  • NIO (NIO, 7.7 pct): Electric car company
  • Albemarle (ALB, 7.3 pct): Lithium provider for electric vehicle batteries
  • Enphase Energy (ENPH, 6.2 pct): Residential and commercial solar power
  • ON Semiconductor (ON, 5.2 pct): Semiconductor supplier company

We have two investment takeaways from this data:

#1: Alt energy has significantly lagged the S&P 500 year-to-date, but has meaningfully outperformed over the last month:

  • 3 alt-energy ETF average vs S&P year-to-date: -5.9 pct vs 21.2 pct
  • 3 alt-energy ETF average vs S&P over the last month: +12.1 pct vs +2.4 pct

The 3 alt-energy ETFs we covered hit their all-time highs in January and February of 2021 amid hopes of Federal government support of clean energy by the then-newly installed Biden administration. That enthusiasm waned soon thereafter with a largely do-nothing Congress on the issue of clean energy and a myriad of issues on the President’s agenda. Nevertheless, recent performance has shown clean energy has piqued investors’ interest again, so this upcoming climate conference will set an important tone for this investment theme going forward.

#2: As for the top clean energy ETFs’ “highest conviction ideas”, Enphase is the only common top holding amongst these three ETFs. That’s been a winning name of late, especially after the company posted record revenue for Q3 this week. We’re not necessarily recommending this company or the others backed by these ETFs, but ENPH is clearly the bellwether to watch as we see the headlines that come out of COP26.

Even with little overlap in top names, these ETFs all have common themes when it comes to aiding or providing solar or wind energy solutions as well as serving or being directly involved in the electric vehicle market. Continued positive momentum in these areas will likely come down to the outcome of the President’s latest now scaled-back proposals for climate change investments.

Bottom line: clean energy companies have received a boost over the last month as 1) President Biden negotiates what will be included in his infrastructure bill with regard to alternative energy solutions and 2) traditional energy costs have spiked. Increasing interest in investments that fit with environmental, social and corporate governance goals is also a helpful tailwind, as well as Tesla’s recent rally. Our bottom line is that the clean energy space works best when there are highly visible political catalysts. COP26 certainly qualifies, but to be longer-run bullish on clean energy stocks requires a belief that US government spending in this area will continue to increase, and materially so. At present, with a narrowly split House and a midterm election in a year’s time, that is a hard investment case to make in our view.