A hefty 49% are utilities stocks, followed by 32% in technology and 20% in industrials. The Harvest ETF holds the 40 largest clean energy companies that it has identified globally. The BMO ETF’s stock weightings are based on a combination of market capitalization and a clean energy exposure score calculated by Standard & Poor’s personnel. However, the performance of clean energy companies may be very different from the sectors in which they’re categorized. “And you’re trying to find those companies that are most exposed to whatever thematic approach you’re trying to identify, in this case clean energy.”Īccording to Morningstar, the BMO ETF recently held 46% of its portfolio in utilities stocks, with the next highest weightings being 31% in technology and 20% in industrials. “You’re no longer necessarily constrained by sectors or even industries,” said Raes, whose ETF is global in scope. Like other thematic strategies, clean energy ETFs are by definition multi-sector in nature. “That started driving investments, as people are concerned about not just being environmentally friendly but making a profit.” president Donald Trump, whose energy pronouncements included praise for “beautiful clean coal” and tilting against “cancer-causing” windmills.įirst Trust’s Cheong said that over the past five or six years, wind and solar power have become cost-competitive with natural gas, and even cheaper as an input relative to coal. Stocks tied to this theme had been booming even during the administration of U.S. In response to public demand, there has been a proliferation of ETFs with ESG-related themes.Ī powerful driving force for clean energy investment is its growing cost-competitiveness. Overseas, the European Union is investing heavily in environmental initiatives in support of its goal of net-zero greenhouse gas emissions by 2050.īoth retail and institutional investors, and the business community as a whole, are recognizing the importance of environmental, social and governance (ESG) factors, which favour clean energy over traditional sources. In Canada, the Trudeau government’s carbon tax was upheld as constitutional in a March ruling by the Supreme Court of Canada. The president’s US$2-trillion infrastructure plan unveiled last month includes billions for electric vehicle charging stations. In the U.S., one of the first acts of the newly elected Biden administration was to rejoin the Paris accord on climate change. Energy Information Administration that renewable energy will be the source of 38% of global power generation by 2025, up from 31% in 2019 and 20% in 2010.Ĭontributing to the shift toward green energy are favourable political winds. In a presentation to advisors, Harvest cited projections by the U.S. “New sources of power and power projects are going to be predominantly in renewable projects,” said MacDonald. There are multiple reasons - economic, environmental, social and political - why proponents of clean energy ETFs see a market that will have long-term secular growth. That makes its management expense ratio (MER) slightly higher than that of BMO, which charges 0.35% and will cap its MER at 0.40%. The Harvest ETF charges a management fee of 0.40%, not including expenses. “So any type of pullback like what we’ve just seen, we see that as opportunity.” Paul MacDonald, chief investment officer and portfolio manager with Oakville, Ont.-based Harvest Portfolios Group Inc., said the Harvest ETF is a low-cost way to participate in the growth and development of renewable energy. The largest of its kind in the U.S., it returned 141.8% in 2020 and 44.4% in 2019. The BMO ETF is based on the same index employed by the US$5.3-billion iShares Global Clean Energy ETF. Raes said clean energy can add another growth element to the portfolio, often with a lower correlation to the broader market and thereby enhancing diversification. “But it certainly doesn’t impact the long-term growth story that’s out there.” Mark Raes, head of products with BMO Global Asset Management Canada, noted that the market has recently seen a rotation away from growth stocks toward more traditional, value companies. The outlook for clean energy “is still very strongly positive if you can withstand the volatility.” These companies will grow into those earnings over time,” Cheong said. Though clean energy stocks were due for a correction, according to Cheong, the recent losses have created a more favourable entry point for investors who have a longer-term holding period. The company’s ETF is a clone of the similarly named US$2.7-billion ETF, managed by an affiliate and listed in the U.S., which returned 184% in calendar 2020 and 42.7% the year before. Valuations for clean energy companies had become rich, with estimated forward price-earnings ratios of more than 60 times, said Karl Cheong, head of distribution at Toronto-based FT Portfolios Canada Co., which operates as First Trust Canada.
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