ETF Of The Week: Clean Power Shines Amid Conflict

January 13, 2020

With Iran dominating the headlines, all eyes have turned toward oil and other energy funds to see how this latest crisis will be priced into the sector. (My colleague Sumit Roy even wrote his own take: "How The Iran-US Conflict Impacts ETFs.")

It's true that rising Iran-U.S. tensions have caused a spike in energy funds. Astonishingly, however, the best-performing ETF of the past few weeks wasn't an oil or a natural gas fund—but a renewable power one.

Over the past 30 days, the SPDR S&P Kensho Clean Power ETF (CNRG) rose 16.4%, more than any other nonleveraged, noninverse ETF. (CNRG formerly traded under the ticker "XKCP.")

Stock Concentration Proves Beneficial

CNRG's stellar performance has been driven largely by its significant allocation to FuelCell Energy (FCEL), the largest fuel cell manufacturer in the U.S.

The stock has been on a tear lately, rising 341% in the past month on the back of investor optimism surrounding the completion of a recent corporate restructuring and the inking of key partnerships, such as with Exxon Mobil (XOM).

FuelCell Energy is CNRG's largest holding, at 9.9%; the next largest holding is Tesla (TSLA), at just 3.4%.

There aren't too many stocks in CNRG (just 45, in fact), which means that one outperformer can really move the needle—especially if that outperformer happens to be the portfolio's biggest weighting.

AI-Driven Selection Methodology

Like other renewable energy ETFs, CNRG tracks companies involved in solar, wind, hydroelectric and geothermal power generation, though it is one of only two such ETFs with a purely U.S. focus. (The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) is the other.)

Potential constituents for the fund are selected via an artificial-intelligence-driven scan of company literature and SEC documentation for specific clean-power-related keywords. Companies are then divided into "core" and "noncore" holdings, depending on whether renewable energy is their primary business strategy.

The resultant benchmark is overweighted toward core holdings, though among groupings of similar companies core and noncore holdings, are equally weighted. (The precise breakdown between core and noncore holdings isn't specified in the fund's prospectus.)

Cheaper Than The Big Guys, But Smaller

Readers with long memories might remember CNRG for its presence in my World's Cheapest ESG ETF Portfolio, which allocates 5% to the fund in lieu of physical commodity representation.

With an expense ratio of 0.45%, CNRG is still the cheapest play on renewable power, though BlackRock's iShares Global Clean Energy ETF (ICLN) costs only one basis point more and has hundreds of millions more in assets under management. (Performancewise, though, CNRG is the clear winner of the two. ICLN has risen only 6.9% over the past month.)

Compared with ICLN, CNRG is a tiny fund, with just $14.5 million in assets. Nor is it particularly liquid: The fund barely trades, with $0.2 million in average volume per day and a 0.15% spread.

Strong Long-Term Returns

Still, there's a lot to love about CNRG. At 0.45%, it's substantially cheaper than other renewable power plays; the average for the group is 0.62%.

Plus, with an MSCI ESG score of 5.59 out of 10, CNRG also ranks higher on common ESG criteria than other renewable plays, like QCLN or the Invesco WilderHill Clean Energy ETF (PBW). (ICLN outranks CNRG on MSCI ESG credentials, however.)

Finally, CNRG's gangbuster performance isn't just a transitory blip. Over a one-year period, the longest time for which complete data was available, the fund has returned 56.5%, making it the seventh-best performing ETF around.

The only renewable power play to beat CNRG over that time period was the Invesco Solar ETF (TAN), which gets a juice from its hefty securities lending activity (read: "ETF Of The Week: Solar ETF Shines").

Source: StockCharts.com ; data as of Jan. 9, 2020

 

Contact Lara Crigger at [email protected]

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