The number of sustainable energy investments is increasing for investors who want to add diversification and exposure to renewable energy stocks and exchange-traded funds to their portfolios. A growing number of investors are developing climate-aware investment strategies amid the ongoing global threat from changes in the environment, heightened regulatory disruptions and the increased availability of data on companies' environmental footprint and practices, says Jodie Gunzberg, managing director, chief institutional investment strategist at Morgan Stanley Wealth Management. "The availability and quality of investments are increasing across asset classes and geographies, giving investors options to define and construct a climate-leader or fossil fuel-aware investment strategy that integrates their environmental impact objectives with their financial goals," she says. Here are seven renewable energy investments to consider.
Invesco Solar ETF
The Invesco Solar ETF (TAN) provides exposure to global technology and utility stocks that could benefit from demand for solar as alternative energy. "TAN remains the lone dedicated ETF focused on solar energy, helping demand increase in 2020," says Todd Rosenbluth, head of ETF and mutual fund research at CFRA, a New York-based investment research company. "However, it is poised for continued gains in 2021." Investors benefit from the diversification and liquidity of having U.S., European and Chinese companies in one ETF. The Invesco Solar ETF tracks two dozen solar energy companies such as First Solar (FSLR) and SolarEdge Technologies (SEDG). "The Biden administration and the Democratically controlled Congress have made combating climate change a key priority this year that should provide a catalyst for the clean energy investments," he says.
SPDR S&P Kensho Clean Power ETF
CNRG (CNRG) is an innovative ETF focused on companies that offer products and services related to renewable energy such as solar, wind, hydro and geothermal generation and transmission, Rosenbluth says. AES Corp. (AES), FuelCell Energy (FCEL) and SunPower Corp. (SPWR) are some of its top holdings. Around 75% of the stocks are from the U.S., with 12% coming from China and a number from Canada, Chile, Switzerland and Brazil.
iShares Global Clean Energy ETF
The iShares Global Clean Energy ETF (ICLN) offers exposure to renewable energy companies, Rosenbluth says. This ETF tracks the S&P Global Clean Energy Index and includes companies that produce solar, wind and other renewable power sources globally. The top three holdings are Plug Power (PLUG), Enphase Energy (ENPH) and Verbund (VER). The one-year return is more than 120%. Many investors prefer to pick stocks in sectors aligned with next business cycle themes, “where projected global energy consumption shows a significant rise in clean energy sources,” Gunzberg says. “So, actively picking stocks in industries that can capitalize on the opportunity to embrace trends in changing consumer behavior, rapid digitization and deglobalization is important.”
NEE (NEE) is a utility company that owns Florida Power & Light Co. and Gulf Power Co., plus solar and wind assets. The company seeks a target of 100% carbon pollution-free electricity by 2035 with new clean water and air standards and steps to reduce methane emissions, says Michael Underhill, chief investment officer at Capital Innovations in Wisconsin. "Many investors recognize NextEra Energy has sold off with pressure on the rest of the renewables complex. Given the rise in interest rates that hurt utility sector valuations so far this year, (it had) a double impact," he says. "Investors who are not already overweight expressed more interest in NEE but worried about tactical or technical headwinds in the short run which we believe are subsiding in the next three quarters."
Vestas Wind Systems
Vestas Wind Systems (VWDRY) – a Danish company that designs, manufactures and installs wind turbines – has installed 132 gigawatts of wind turbine capacity in 83 countries. Vestas stands out among its competitors, Underhill says. Infrastructure and green energy could provide uncorrelated opportunities "boosted by macroeconomic tailwinds as renewable energy strategies have been particularly resilient to the impact of the pandemic, unlike traditional energy strategies based on fossil fuels, which have experienced notable volatility," Gunzberg says. "Now renewable energy is among the most cost-effective forms of power generation, which has led to greater state renewables requirements and increased project growth. Furthermore, renewables are projected to become the primary source of energy in the U.S. within 30 years and may require up to $10 trillion of capital investment."
Albemarle (ALB) is a Charlotte, North Carolina-based global specialty chemicals company with positions in lithium, bromine and refining catalysts. The company is working toward 100% electric vehicle sales by 2030 and is a founding member of the Zero Emission Transportation Association, a U.S.-based coalition committed to that goal. EV batteries contain materials such as lithium. Albemarle has grown earnings per share at 24% a year over the past five years. The management team is retaining more than half of its earnings to reinvest. "We like smart management teams doing things like this," Underhill says.
Iberdrola (IBDRY) is a Spain-based utility company that owns wind assets. European Union funds will be used in Spain to form a public-private consortium with the company and car manufacturer SEAT to build the first factory for EV batteries. In 2020, financing increased for offshore wind financing in Europe, reaching 26.3 billion euros despite the global pandemic according to industry trade group WindEurope. In 2020, Iberdrola said it would invest $4.5 billion during the next four years in France to develop more renewable energy. Investment opportunities may be strongest in power generation such as hydro, solar and wind for short-term options of one to three years, Gunzberg says. In three to seven years, there will be opportunities in power storage and power grid enhancements while long-term investment opportunities are likely for EVs and renewable power such as hydrogen, she says.
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