• Renewable energy ETFs offer investors broad access to sector
  • Economic cycle has impacted performance of renewable ETFs in past year
  • Strong growth forecasts may see renewables as investing theme of the decade

Want to get in on the global shift towards renewable energy but not sure which company or companies are best to invest? Exchange Traded Funds (ETFs) offer investors who may not be confident picking individual stocks the opportunity to invest in a wider group of companies in the renewables sector.

But while ETFs are the easiest way to cover the renewables sector, the past year’s performance may have many Australian investors jittery to jump on the renewables bandwagon.

VanEck senior associate (Investments & Capital Markets) Alice Shen told Stockhead clean energy assets can underperform for several reasons.

“Broadly speaking clean energy assets are cyclical and tend to underperform when the economic cycles contract and capex (capital expenditure) decreases,” she said.

“An idiosyncratic risk factor is that the industry is susceptible to regulatory changes – a recent example is the US decision to investigate solar panel imports from Southeast Asian countries, potentially driving supply disruptions.”

Shen said more recently cost inflation from freight, labour and materials could also cause a drag on the performance.

‘Investment theme of the decade’

Despite recent volatility Shen said there is still attractive upside in the sector and forecasts a long term thematic trend.

“Investing in renewables companies could be the investment theme of the decade, and ETFs are a good vehicle to take advantage of the long-term structural growth trend,” she said.

She said globally there has been inflows of US$2billion into clean energy ETFs over the past year.

“In terms of the sector fundamentals estimated by Bloomberg, renewable energy is leading in both EPS growth (66.1%) and sales growth (22.1%) in the next two years among 20 industry groups,” she said.

Shen said renewable companies have continued to enjoy economies of scale along with improved technology for the past decade. Wind and solar have seen 15% annual cost decline, even more for battery storage at 20%.

“In aggregate, Morgan Stanley estimates a 6% CAGR in rolling out new wind, solar and storage installation globally towards 2030,” she said.

“As countries around the world endeavour to achieve carbon neutrality by 2050, the energy generation mix is most likely to shift heavily towards renewables.”

So, just what are the three major ETFs in Australia focusing on the renewables sector and what is their focus to drive growth for their investors?

ACDC is not just a rock band

ETF Securities Battery Tech & Lithium ETF (ASX:ACDC) is arguably the star performer of the bunch.  Launched in September 2018, ACDC tracks the performance of the Solactive Battery Value-Chain Index.

The index represents companies that are providers of electrochemical storage technology and producers of metals that are primarily used for the manufacturing of battery-grade lithium batteries. Among its top 10 holdings are Mineral Resources (ASX:MIN), US aerospace, defence and IT security company Lockheed Martin (NYSE:LMT) and Pilbara Minerals (ASX:PLS).

While it has been named one of Australia’s top performing ETFs in the past, returning 68.51% since its inception, ACDC has dropped a ~11.11% return in the past year to ~$84.14.


CLNE was first clean energy ETF on ASX

The VanEck Global Clean Energy ETF (ASX:CLNE) launched in March 2021 and was the first clean energy ETF listed on the ASX.  CLNE tracks the S&P Global Clean Energy Select Index which measures the performance of 30 of the largest and most liquid companies with businesses related to global clean energy production, technology and equipment, from both developed and emerging markets.

Among its top holdings are US energy technology company Enphase Energy (Nasdaq: ENPH), Brookfield Renewable (NYSE:BEPC) and SolarEdge Technologies (Nasdaq:SEDG).  CLNE has fallen ~16.75% in the past year to ~$8.60.


BetaShare’s ERTH ETF has Tesla as major holding

BetaShares Climate Change Innovation ETF (ASX:ERTH) aims to track the performance of an index comprising a portfolio of up to 100 leading global companies that derive at least 50% of their revenues from products and services that help to address climate change through the reduction or avoidance of C02 emissions.

Among holdings are clean energy providers, along with companies tackling green transport, waste management, sustainable product development and improved energy efficiency and storage.

Their top holdings include electric car maker Tesla (Nasdaq:TSLA),  power management company Eaton Corp (NYSE:ETN) and American Water Works (NYSE:AWK).

The ERTH share price has fallen ~14.73% in the past year to ~$10.94.