The Inflation Reduction Act, which was passed by the House of Representatives on Friday, represents a major victory for climate change advocates.
That’s because the new bill includes $369 billion allocated to energy security and climate change programs over the next 10 years in addition to tax credits for manufacturing renewable energy solutions like solar panels, wind turbines and batteries.
This landmark bill could have major implications for renewable energy companies and could reduce net carbon emissions in the U.S. by up 44% below 2005 levels by 2030 according to preliminary analysis by research firm Rhodium Group.
Seven largest ETFs covering the broad renewable energy space, which have more than $100 million in assets under management, have seen significant increases during the first two weeks of August in the leadup to the passage of the bill, ranging between 3% and 18%.
A Range of ETFs
The iShares Global Clean Energy ETF (ICLN), which is the largest clean energy fund, with $5.62 billion AUM, launched in June 2008. The fund holds 98 global companies that either provide biofuels or equipment and technology to generate them. The United States dominates the fund, with a weighting of more than 46%, and Denmark is the second largest country, at less than 10% of the fund. Its top three holdings include Enphase Energy Inc., SolarEdge Technologies Inc. and Vestas Wind Systems A/S. ICLN has an expense ratio of 0.42%.
The $2.23 billion First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) debuted in February 2007 and covers 65 companies offering materials needed for the production of clean energy; energy intelligence solutions, energy storage or renewable energy. The fund’s portfolio has a more than 82% weighting in the United States, with the next largest exposure to Hong Kong, with about a 9.5% weighting. Its top three holdings include Enphase Energy, Tesla Inc., and ON Semiconductor Corp. QCLN has an expense ratio of 0.58%.
The Invesco WilderHill Clean Energy ETF (PBW), which has $1.22 billion in assets under management, is one of the oldest funds in this category having launched in March 2005. Its mandate tilts away from pure plays to include companies that are poised to benefit from the growing focus on the provision of clean energy. The Wilderhill Clean Energy Index includes 78 securities and has a U.S. weighting of more than 88%, followed by China at just 3.76%. The fund can only hold companies that have listings in the U.S. Its top holdings include Lordstown Motors Corp., Canoo Inc. and Infrastructure & Energy Alternatives Inc. PBW has an expense ratio of 0.61%.
The $762.3 million ALPS Clean Energy ETF (ACES), which launched in June 2018, tracks an index of 47 North American securities that provide clean energy technologies or operate in the renewable energy space. The fund has almost all of its assets (82%) invested in U.S. companies, while Canadian companies take up the remainder. Among its top holdings are Enphase Energy, Plug Power Inc. and Tesla Inc. ACES has an expense ratio of 0.55%.
The $320.32 million SPDR S&P Kensho Clean Power ETF (CNRG), which launched in October 2018, tracks an innovation-driven index that splits its focus between the manufacture of renewable energy technologies as well as products and services that support the renewable energy space. The fund includes 45 U.S.-listed companies domiciled in the U.S., Canada, China, Brazil and Chile, though the U.S. has almost an 75% weighting in the index. Top companies include Enphase Energy, First Solar Inc. and Plug Power. CNRG comes with an expense ratio of 0.45%.
Invesco’s second fund in this category, the $259.67 million Invesco Global Clean Energy ETF (PBD), has been around since June 2007. Its underlying index covers 124 global companies that are focused on energy conservation, energy efficiency and further development of renewable energy. The fund has a preference toward smaller pure-play companies. The United States is still the largest country weighting, but it only represents about 34% of the index, the smallest weighting yet of the ETFs discussed. South Korea is the second-largest weighting at roughly 10%. Top holdings include Lordstown Motors, Stem Inc. and Infrastructure & Energy Alternatives. PBD’s expense ratio is the highest in the group at 0.75%.
The Global X Renewable Energy Producers ETF (RNRG) holds $105.26 million in assets and rolled out in mid-2015. Its underlying index targets companies that produce energy via renewable sources or companies that are spun off from large energy companies to focus on renewable energy assets. Its weighting to the U.S. is even smaller than PBD’s, at just 16.33% of the fund, followed by Canada at nearly 14%. Its top holdings include Centrais Eletricas Brasileiras SA-Eletrobras, EDP Renovaveis SA and Orsted. RNRG has an expense ratio of 0.65%.
|Ticker||Fund||Issuer||Exp Ratio||AUM||# Holdings||Largest Country|
|ICLN||iShares Global Clean Energy ETF||BlackRock||0.42%||$5.62B||98||U.S., 46.27%|
|QCLN||First Trust NASDAQ Clean Edge Green Energy Index Fund||First Trust||0.58%||$2.23B||65||U.S., 82.27%|
|PBW||Invesco WilderHill Clean Energy ETF||Invesco||0.61%||$1.22B||78||U.S., 88.48%|
|ACES||ALPS Clean Energy ETF||SS&C||0.55%||$762.30M||47||U.S., 81.81%|
|CNRG||SPDR S&P Kensho Clean Power ETF||State Street Global Advisors||0.45%||$320.32M||45||U.S., 74.51%|
|PBD||Invesco Global Clean Energy ETF||Invesco||0.75%||$259.67M||124||U.S., 34.09%|
|RNRG||Global X Renewable Energy Producers ETF||Mirae Asset Global Investments Co., Ltd.||0.65%||$105.26M||43||U.S., 16.33%|
Source: FactSet, data as of 8/3/2022
Given that the Inflation Reduction Act is a piece of U.S. legislation, the funds with the greatest exposure to the U.S. market are in the best position from the programs and incentives.
PBW has the largest allocation to the U.S., with 88% of its portfolio, though QCLN and ACES are close behind, offering exposures of around 82%.
That said, ICLN, the largest fund in the space, is also the cheapest, with an expense ratio of 0.42%, almost 20 basis points lower than the expense ratio charged by PBW for investors who are looking for more well-rounded, global exposure. However, the U.S. represents less than half of ICLN’s index.
CNRG may present a more favorable alternative given that it is a sizable fund, has roughly three-quarters of its portfolio invested in U.S. companies and comes with an expense ratio of 0.45%.
Contact Heather Bell at [email protected]