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Will Trump Era Spell Trouble for Alternative Energy ETFs?
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The victory of Donald Trump has flared up uncertainties in the alternative energy industry. Far from supporting the renewable sector with any kind of incentives, the President has promised to revive coal. The industry was under pressure even prior to the election but the outlook has clearly taken a beating since then.
Nevertheless, all is not lost for alternative energy industry, especially if we take a look at the prospects of solar power. A relatively higher oil price is also likely to be a major influence, as this will lead to increased demand for solar energy.
On the other hand, total renewables used in the electric power sector is projected to dip 0.3% in 2017, followed by an increase of 7.3% in 2018, as per a U.S. Energy Information Administration (“EIA”) report. Electricity generation from hydropower is expected to fall 2.2% in 2017, followed by a 4.2% increase in 2018. Generation from renewables other than hydropower is expected to rise 1.3% in 2017 and 9.8% in 2018. Though 2017 expectations doesn’t appear to be encouraging, the alternative energy space will likely witness growth in 2018.
Prospects in Solar & Wind
A major growth area in the renewable space is solar energy. An EIA report indicates continued growth in utility-scale solar power capacity, which is projected to average almost 31 gigawatts (“GW”) at the end of 2018, reflecting an increase of 44% from 2016-end. Solar will account for 1.4% of the total U.S. utility-scale generation in 2018.
The finalized Clean Power Plan for CO2 reduction and tax credit extensions for both solar and wind have been important drivers of green energy growth in the U.S.
Per the latest findings by the Solar Energy Industries Association, the U.S. solar energy industry added 14.8 GW PV installations, representing almost double the capacity from the 2015 levels. In fact, 2016 has proved to be a record-breaking year for solar, buoyed by strong contribution from the utility segment.
Looking ahead, Solar Energy Industries Association expects the U.S. solar market to witness strong growth in 2017, with installations projected to rise to 13.2 GW DC. Although this reflects a decline of 10% from 2016 levels, it is 75% higher than the 2015 levels. The utility segment is expected to account for 66% of the total capacity. Over the next five years, U.S. solar PV installed capacity is expected to grow three times its present capacity. It is projected that over 18 GW of solar PV capacity will be installed annually by the end of 2022.
Meanwhile, the American Wind Energy Association reported that the U.S. wind industry has installed 6,478 megawatts (“MW”) during the fourth quarter of 2016 and 8,203 MW in 2016, reaching the installed wind capacity to 82,183 MW. Earlier, it had stated that wind capacity is expected to increase another 11% in 2017.
What Trump Presidency Means for Green Sector
The future of solar companies looks cloudy, as the President plans to bring back the traditional energy businesses – such as coal, oil and gas – and has expressed skepticism about global climate change. Trump has promised to call off the landmark Paris deal and boost coal production. Not only has Trump called climate change a Chinese hoax, he has pledged to repeal Obama’s Clean Power Plan.
Therefore, while the long-term potential of the space is undeniable, the industry might face significant challenges in the near term challenges.
ETFs to Tap the Sector
For investors seeking to play this trend in the ETF form, the following alternative energy ETFs could be interesting picks.
PowerShares WilderHill Clean Energy Portfolio (PBW - Free Report)
Launched in March 2005, PBW tracks the WilderHill Clean Energy Index. It focuses on companies that are engaged in the business of advancement of cleaner energy and conservation.
PBW has an asset base of nearly $87.7 million. This fund holds 38 stocks and the top 10 companies occupy a 34.86% share of the total net assets. The average daily volume (3 months) is 99,139 shares. The fund has an annual dividend yield of 2.55% and an expense ratio of 0.70%.
The top three individual holdings in the ETF are Daqo New Energy Corp. (DQ), Tesla Motors Inc. (TSLA) and Sociedad Química y Minera de Chile S.A. (SQM), with asset allocation of 3.85%, 3.82% and 3.68%, respectively.
PBW is heavily invested in Information Technology, as this represents 42% of the fund, followed by Industrials (25%) and Utilities (17%).
VanEck Vectors Global Alternative Energy ETF
Launched in May 2007, GEX tracks the Ardour Global Index, focusing on companies that are primarily engaged in the business of alternative energy comprising solar power, bio energy, wind power, hydro power and geothermal energy.
The fund holds about 33 stocks and has $65.9 million worth of assets under management and charges an expense ratio of 0.62%. GEX has an average daily volume (3 months) of 4,320 shares and an annual dividend yield of 2.15%.
Apart from robust holdings in the U.S., the product offers solid exposure to Denmark, Spain and China. From a sector perspective, Industrials and Information Technology take up the largest share with a respective 51% and 23%.
Further, the fund’s top 10 holdings jointly contribute 65.59%. Tesla Motors Inc., Vestas Wind Systems A/S and Eaton Corp Plc (ETN) are the top three holdings, comprising 12.24%, 11.34% and 9.59%, respectively, of total net assets.
PowerShares Global Clean Energy Portfolio ETF(PBD - Free Report)
Launched in March 2007, this ETF follows the WilderHill New Energy Global Innovation Index, giving investors exposure to about 100 companies that are engaged in renewable sources of energy and technologies facilitating cleaner energy.
The fund’s assets under management are worth $51.29 million and its expense ratio is 0.76% a year. The fund’s top 10 holdings contribute 19.29%. PBD has an average daily volume (3 months) of 17,510 shares and has an annual dividend yield of 1.93%.
The top three individual holdings in the ETF are Tesla Motors Inc., Universal Display Corporation (OLED) and OSRAM Licht AG, with asset allocation of 2.10%, 2.02% and 1.98%, respectively.
PBD is heavily invested in Industrials, as this represents 33% of the fund. This is followed by Utilities (30%) and Information Technology (24%). In terms of countries, the U.S. dominates with 24%, followed by China’s 10%.
First Trust NASDAQ Clean Edge Green Energy Index Fund(QCLN - Free Report)
Launched in August 2007, this ETF tracks the NASDAQ Clean Edge Green Energy Index and follows a benchmark of clean energy companies, giving exposure to 39 such companies with an asset base of $55.2 million. The fund charges investors 0.60% a year for the exposure. QCLN has an average daily volume (3 months) of 11,495 shares and an annual dividend yield of 1.17%.
The top 10 holdings account for 61.11% of the total fund. The top three individual holdings in the ETF are, Tesla Motors Inc., ON Semiconductor Corporation, Hexel Corp. (HXL) with asset allocation of 10.16%, 8.64% and 7.52% respectively.
Technology firms dominate this ETF, holding 53% of the assets, followed by Utilities (17%). In terms of geographical diversification, the fund is almost entirely focused on the U.S. market.
Launched in June 2008, this ETF tracks the S&P Global Clean Energy Index with 37 holdings and an asset base of $80.9 million. ICLN charges investors 0.47% a year. ICLN has an average daily volume (3 months) of 64,082 shares and an annual dividend yield of 3.55%.
Geographically, U.S. leads the list with 21%, while China holds the second spot at 19%. ICLN is more inclined toward utilities, representing 45% of the fund, followed by Industrials (27%).
The fund appears highly concentrated on the top 10 holdings with a share of 54.93%. Companhia Energética de Minas Gerais S.A. (CIG), Covanta Holding Corporation (CVA) and Electric Power Development Co., Ltd.are the top three holdings, comprising 5.97%, 5.94% and 5.81%, respectively, of total net assets.
Bottom Line
The depletion of fossil fuel reserves, new and advanced technologies, and more competent alternative energy applications have made green power more feasible, injecting optimism into the sector. However, Trump’s focus on reviving the coal industry instead of encouraging alternate energy is a serious concern for all renewable energy companies. Again, investors should closely track political factors like eco-friendly mandates and renewable energy agendas to see if potential benefits spill over to renewable companies and sector ETFs.
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Will Trump Era Spell Trouble for Alternative Energy ETFs?
The victory of Donald Trump has flared up uncertainties in the alternative energy industry. Far from supporting the renewable sector with any kind of incentives, the President has promised to revive coal. The industry was under pressure even prior to the election but the outlook has clearly taken a beating since then.
Nevertheless, all is not lost for alternative energy industry, especially if we take a look at the prospects of solar power. A relatively higher oil price is also likely to be a major influence, as this will lead to increased demand for solar energy.
On the other hand, total renewables used in the electric power sector is projected to dip 0.3% in 2017, followed by an increase of 7.3% in 2018, as per a U.S. Energy Information Administration (“EIA”) report. Electricity generation from hydropower is expected to fall 2.2% in 2017, followed by a 4.2% increase in 2018. Generation from renewables other than hydropower is expected to rise 1.3% in 2017 and 9.8% in 2018. Though 2017 expectations doesn’t appear to be encouraging, the alternative energy space will likely witness growth in 2018.
Prospects in Solar & Wind
A major growth area in the renewable space is solar energy. An EIA report indicates continued growth in utility-scale solar power capacity, which is projected to average almost 31 gigawatts (“GW”) at the end of 2018, reflecting an increase of 44% from 2016-end. Solar will account for 1.4% of the total U.S. utility-scale generation in 2018.
The finalized Clean Power Plan for CO2 reduction and tax credit extensions for both solar and wind have been important drivers of green energy growth in the U.S.
Per the latest findings by the Solar Energy Industries Association, the U.S. solar energy industry added 14.8 GW PV installations, representing almost double the capacity from the 2015 levels. In fact, 2016 has proved to be a record-breaking year for solar, buoyed by strong contribution from the utility segment.
Looking ahead, Solar Energy Industries Association expects the U.S. solar market to witness strong growth in 2017, with installations projected to rise to 13.2 GW DC. Although this reflects a decline of 10% from 2016 levels, it is 75% higher than the 2015 levels. The utility segment is expected to account for 66% of the total capacity. Over the next five years, U.S. solar PV installed capacity is expected to grow three times its present capacity. It is projected that over 18 GW of solar PV capacity will be installed annually by the end of 2022.
Meanwhile, the American Wind Energy Association reported that the U.S. wind industry has installed 6,478 megawatts (“MW”) during the fourth quarter of 2016 and 8,203 MW in 2016, reaching the installed wind capacity to 82,183 MW. Earlier, it had stated that wind capacity is expected to increase another 11% in 2017.
What Trump Presidency Means for Green Sector
The future of solar companies looks cloudy, as the President plans to bring back the traditional energy businesses – such as coal, oil and gas – and has expressed skepticism about global climate change. Trump has promised to call off the landmark Paris deal and boost coal production. Not only has Trump called climate change a Chinese hoax, he has pledged to repeal Obama’s Clean Power Plan.
Therefore, while the long-term potential of the space is undeniable, the industry might face significant challenges in the near term challenges.
ETFs to Tap the Sector
For investors seeking to play this trend in the ETF form, the following alternative energy ETFs could be interesting picks.
PowerShares WilderHill Clean Energy Portfolio (PBW - Free Report)
Launched in March 2005, PBW tracks the WilderHill Clean Energy Index. It focuses on companies that are engaged in the business of advancement of cleaner energy and conservation.
PBW has an asset base of nearly $87.7 million. This fund holds 38 stocks and the top 10 companies occupy a 34.86% share of the total net assets. The average daily volume (3 months) is 99,139 shares. The fund has an annual dividend yield of 2.55% and an expense ratio of 0.70%.
The top three individual holdings in the ETF are Daqo New Energy Corp. (DQ), Tesla Motors Inc. (TSLA) and Sociedad Química y Minera de Chile S.A. (SQM), with asset allocation of 3.85%, 3.82% and 3.68%, respectively.
PBW is heavily invested in Information Technology, as this represents 42% of the fund, followed by Industrials (25%) and Utilities (17%).
VanEck Vectors Global Alternative Energy ETF
Launched in May 2007, GEX tracks the Ardour Global Index, focusing on companies that are primarily engaged in the business of alternative energy comprising solar power, bio energy, wind power, hydro power and geothermal energy.
The fund holds about 33 stocks and has $65.9 million worth of assets under management and charges an expense ratio of 0.62%. GEX has an average daily volume (3 months) of 4,320 shares and an annual dividend yield of 2.15%.
Apart from robust holdings in the U.S., the product offers solid exposure to Denmark, Spain and China. From a sector perspective, Industrials and Information Technology take up the largest share with a respective 51% and 23%.
Further, the fund’s top 10 holdings jointly contribute 65.59%. Tesla Motors Inc., Vestas Wind Systems A/S and Eaton Corp Plc (ETN) are the top three holdings, comprising 12.24%, 11.34% and 9.59%, respectively, of total net assets.
PowerShares Global Clean Energy Portfolio ETF(PBD - Free Report)
Launched in March 2007, this ETF follows the WilderHill New Energy Global Innovation Index, giving investors exposure to about 100 companies that are engaged in renewable sources of energy and technologies facilitating cleaner energy.
The fund’s assets under management are worth $51.29 million and its expense ratio is 0.76% a year. The fund’s top 10 holdings contribute 19.29%. PBD has an average daily volume (3 months) of 17,510 shares and has an annual dividend yield of 1.93%.
The top three individual holdings in the ETF are Tesla Motors Inc., Universal Display Corporation (OLED) and OSRAM Licht AG, with asset allocation of 2.10%, 2.02% and 1.98%, respectively.
PBD is heavily invested in Industrials, as this represents 33% of the fund. This is followed by Utilities (30%) and Information Technology (24%). In terms of countries, the U.S. dominates with 24%, followed by China’s 10%.
First Trust NASDAQ Clean Edge Green Energy Index Fund(QCLN - Free Report)
Launched in August 2007, this ETF tracks the NASDAQ Clean Edge Green Energy Index and follows a benchmark of clean energy companies, giving exposure to 39 such companies with an asset base of $55.2 million. The fund charges investors 0.60% a year for the exposure. QCLN has an average daily volume (3 months) of 11,495 shares and an annual dividend yield of 1.17%.
The top 10 holdings account for 61.11% of the total fund. The top three individual holdings in the ETF are, Tesla Motors Inc., ON Semiconductor Corporation, Hexel Corp. (HXL) with asset allocation of 10.16%, 8.64% and 7.52% respectively.
Technology firms dominate this ETF, holding 53% of the assets, followed by Utilities (17%). In terms of geographical diversification, the fund is almost entirely focused on the U.S. market.
iShares Global Clean Energy ETF (ICLN - Free Report)
Launched in June 2008, this ETF tracks the S&P Global Clean Energy Index with 37 holdings and an asset base of $80.9 million. ICLN charges investors 0.47% a year. ICLN has an average daily volume (3 months) of 64,082 shares and an annual dividend yield of 3.55%.
Geographically, U.S. leads the list with 21%, while China holds the second spot at 19%. ICLN is more inclined toward utilities, representing 45% of the fund, followed by Industrials (27%).
The fund appears highly concentrated on the top 10 holdings with a share of 54.93%. Companhia Energética de Minas Gerais S.A. (CIG), Covanta Holding Corporation (CVA) and Electric Power Development Co., Ltd.are the top three holdings, comprising 5.97%, 5.94% and 5.81%, respectively, of total net assets.
Bottom Line
The depletion of fossil fuel reserves, new and advanced technologies, and more competent alternative energy applications have made green power more feasible, injecting optimism into the sector. However, Trump’s focus on reviving the coal industry instead of encouraging alternate energy is a serious concern for all renewable energy companies. Again, investors should closely track political factors like eco-friendly mandates and renewable energy agendas to see if potential benefits spill over to renewable companies and sector ETFs.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>