For regular readers, I hope you don’t mind me repeating my core investment thesis again and again. But we have new readers and I’ve personally experienced the need to hear a concept 5-8 times before it sinks in (however, since subscribers are an exceptional breed, you likely only need to hear it 3-4 times). Here it goes…
The 2020s decade will be the Tipping Point of the energy transition.
I took this idea to twitter in a recent thread. The big idea: To get in on this trend, use ETFs as a convenient and cost-effective way to gain exposure to the clean energy sector.
Clean energy ETFs provide investors with exposure to a broad range of companies, reducing the risk associated with investing in a single stock.
Readers of Portfolios know that the clean energy sector is a rapidly growing industry (CAGRs of 20%+), driven by advances in technology and increased demand for alternative energy sources. This strong growth translates into fantastic investment opportunities for us as investors.
Additional benefits of ETF investing:
lower expense ratios than managed funds,
liquid (ease to buy/sell),
diversification (vs individual companies),
professionally managed - ability to target this specific sector/industry.
But the best thing, I believe, is putting your investments to work in a way that allows us to align our portfolio with our values while supporting the clean energy transition.
A word of warning (I know, we always ruin the good with the warning message). Investing in the stock market, including ETFs, involves risk, and the value of your investment can fluctuate. It's important to carefully consider your investment goals, risk tolerance, and other individual financial circumstances.
In this newsletter, we track multiple portfolios and report monthly on the performance, including a basket of seven (7) clean energy ETFs.
Are you on twitter? If so, check out my Twitter thread on clean energy ETFs and follow my account for more insights in real time.
Clean Energy ETF Portfolio
For 2023, we created a new portfolio for tracking monthly called the “Clean Energy ETFs”. It is devised of seven (7) different clean energy ETFs, invested on 1/1/23 on an equal-weighted basis.
In the research for clean energy ETFs, there were several sector categories we could consider such as clean energy, clean tech, alternative energy, renewables, solar, and wind. In total, there are about 30 ETFs to choose from. I eliminated any less than one year old as well as any under $100 million of assets under management (AUM). In the end, it created a list of 14 ETFs focused in the clean energy sector to choose from. Half of this list was chosen to become part of our highlighted portfolio.
The table below shows the 14 names ranked by total assets under management plus included other important factors when considering investing in ETFs:
Expense ratio
Number of holdings and concentration (what % of portfolio is in top 10)
Returns over time (such as 1-year, 3-year, and 5-year)
Liquidity (ability to buy/sell as needed) - size of fund, total assets.
The overall rating takes into account all of these items (scored by the ETF database).
The Clean Energy ETF portfolio appreciated 12.8% in January, which was more than double the increase of the S&P500 index. Past results do not guarantee future performance (as we’ve certainly seen this firsthand over the past couple of years).
In the seven we’ve chosen for our portfolio, the number of stocks held in the ETF varies from a low of 46 (TAN) up to a high of 162 (ERTH). To get a feel for the types of companies each ETF holds, one can review the top holdings page on the ETF website. For a bit of analysis to share, I pulled the top 10 holdings of each ETF for the seven being tracked and produced a pivot table to see what companies are being held by multiple ETFs. Nine companies made the top 10 of more than one of our ETFs. The table below shows these companies and which ETF holds it.
Telsa and three of the big solar companies are in a majority of the ETFs in our portfolio (4 or 5). SEDG is the ticker for Solar Edge Technologies, FSLR is the ticker for First Solar, and ENPH is the ticker for Enphase Energy. Enphase is the largest with a market cap of $28B while both Solar Edge and First Solar are in the $17B range. These stocks would all be considered “Large Cap” (for companies of over $10B).
The Invesco Wilder Hill Clean Energy ETF (PBW) is unique in that it tailors to small cap growth area of clean energy. If fact, seven (7) of their top ten holdings are clean energy companies that came public through SPACs. And in review of all of their 75 holdings, PBW holds six companies from our Top Picks portfolio in its ETF including: ChargePoint, EVgo, Li-Cycle, Polestar, STEM and MP Materials. It is not surprising then that PBW’s performance for the past 12-months was nearly exactly the return of the Top Picks portfolio for 2022 at -22%.
Please let me know if you have any comments or questions. Also, help us get the word out by sharing a link to the newsletter as we have tripled in size since joining Substack about a year and half ago. Until next time.
Efficiently Yours,
DT