Renewable energy stocks and the related exchange traded funds are sagging this year, but analysts aren’t abandoning select names in the group.
That means that there could be some silver lining and a buying opportunity with ETFs such as the ALPS Clean Energy ETF (ACES). That thesis could be born out because the long-term renewable energy investment idea remains solidly intact and, over the near-term, some of the marquee names in this segment could be due for some upside.
“The investment opportunity to fund the US energy transition is significant, with [more than] $1.2 trillion in total spend necessary by 2030 in order to meet goals set in the Paris Climate Change Agreement, of which we estimate [around] $1.1 trillion is technically feasible,” said Morgan Stanley analysts in a recent note.
Alone, that assessment bolsters the case for ACES, but there’s more to the story, and that’s a plus for investors. One of the points that Morgan Stanley makes is that more investors need to assess the full scope of renewable energy opportunities, indicating that depth is relevant in this space. That’s something ACES has plenty of as it features exposure to nine industry groups.
“Relatively few investors are assessing the entire spectrum of decarbonization technologies, and we believe investors can generate alpha from such a broad based approach, especially as energy policy in the US evolves,” according to Morgan Stanley.
Among the individual clean energy stocks Morgan Stanley likes is Elon Musk’s Tesla. The electric vehicle (EV) giant is the top holding in ACES at a weight of 5.73% as of Oct. 8. The bank is also bullish on some solar equities, including Sunrun (RUN).
“Investors looking for stocks with exposure to multiple decarbonization technologies should consider clean tech company SolarEdge and solar solutions provider Sunrun, according to the analysts. They tip both as beneficiaries of the adoption of renewables and energy storage,” reports Zavier Ong for CNBC.
That’s important to ACES investors because Sunrun is the ETF’s fourth-largest holding at a weight of 5.07%, and solar stocks are the largest industry allocation in the fund at 23.39%. That’s about 200 basis points more than the fund devotes to wind equities.
Other renewable energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
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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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