January 27, 2022

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Change in Sentiment Could Fuel Renewable Rally

After a disappointing 2021, investors might be feeling apprehensive regarding renewable energy stocks. In other words, sentiment is currently sour.

Should that change, the ALPS Clean Energy ETF (ACES) could regain some lost luster. It’s not a far-fetched scenario because market participants continue flocking to environmental, social, and governance (ESG) funds. While ACES isn’t an ESG fund in the purest sense, it clearly checks the “E” box while steering clear of some of the potential controversies associated with scoring companies’ social and governance policies.

“Issuance of sustainable loans and bonds, where proceeds are supposedly earmarked for environmental projects or to further a company’s social goals, exceeded $1.5 trillion, including about $505 billion of green bond sales; ESG-focused exchange-traded funds attracted almost $130 billion in 2021, up from $75 billion a year ago; and investment in early-stage climate tech companies approached $50 billion,” reports Tim Quinson for Bloomberg.

To its credit, ACES, which turns four years old in June, hauled in $340.24 million in new assets last year despite the headwinds encountered by renewable energy stocks. Just a few days into 2022, inflows are already positive for the ALPS fund, confirming that some investors are comfortable betting on better things for clean energy equities this year.

“The outlook for green stocks is challenging because of worries about rising interest rates tied to inflation, unpredictable U.S. politics and regulatory maneuvers like California’s decision to sharply lower subsidies and add new fees for home solar users, said Sophie Karp, an analyst at KeyBanc Capital Markets,” according to Bloomberg.

While the above comments imply hurdles for renewable energy stocks, they also speak to potential opportunity with ACES because the fund spreads its bets around. Yes, the fund allocates 19.68% of its weight to solar stocks, but solar is just one of 10 industries represented in the fund. Others include wind, energy storage, and fuel cell manufacturers.

That diversification is essential because while one renewable energy segment, like solar, for instance, might encounter regulatory headwinds, that doesn’t mean that the whole barrel will be spoiled. Additionally, ACES and its components could catch the eyes of more investors this year because issuance of green and sustainable debt is expected to boom.

Other renewable energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).

For more news, information, and strategy, visit the ETF Building Blocks Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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