As the 2021 United Nations COP26 summit begins in Glasgow, I’m looking at climate change as an investment theme in my portfolio. One option for clean energy investment is iSHARES Global Clean Energy UCITS ETF (LSE: INRG).
Exploring the ETF
iShares Global Clean Energy UCITS ETF is an Exchange Traded Fund. This is a fund that tracks an index or sector and can be bought and sold like a share through most online brokers.
iShares Global Clean Energy UCITS ETF aims to track the performance of the S&P Global Clean Energy Index, which is designed to measure the performance of companies in global clean energy-related businesses from both developed and emerging countries, whilst also taking into account the carbon footprint of these companies.
This ETF is large at over $5bn, established (launched in 2007) and has good trading volume. It does have a relatively high ongoing charge at 0.65%, but if an individual investor tried to replicate something like this it would be a gargantuan task. Running such a large portfolio of shares with all the expense and headache that this involves is beyond most individual investors (certainly me!) and therefore maybe 0.65% is not so bad after all.
At the moment this ETF has just over 80 holdings. 38% is invested in US companies, Chinese firms account for around 6% and investments in UK entities presently stand at just over 4%.
One of the more interesting holdings is Plug Power. This is a US-based company involved in the development of hydrogen fuel cells with a goal to using these to replace batteries, for example in electric cars.
The case for investing
I like this ETF for several reasons.
Firstly, it is broad based in terms of country exposure and also number of companies. That gives it a certain robustness. If one of the companies has a negative shock, it means that the fund will be impacted far less than if you were just invested in that one company. In my opinion, diversification is always a good thing.
Secondly, I like the long-term theme – clean energy investment. Limiting global warming and tackling climate charge are extremely important goals and they are going to get even more important. Clean energy investment is vital if the world is going to achieve those goals
Thirdly, it pays a dividend, albeit a small one. The dividend yield is currently about 0.73%
Past performance and outlook
Over the last five years the performance has been stellar, with the fund up over 150%. However, year to date performance over 2021 has been lacking down around 12%.
This could be for a variety of factors: some of the US companies in this fund have most likely suffered because of bad weather affecting their output and hence their revenue (most noticeably in Texas) and also the energy supply shortages all around the world at the moment may have seen money move into more traditional energy companies.
However, although some investors may feel differently, I see these as short-term factors. When I look ahead, I feel that this sector has the potential to perform strongly over the next few years and therefore this ETF is also likely to perform well. For this reason, I will be seriously considering adding iShares Global Clean Energy UCITS ETF to my portfolio.