Renewable energy stocks have grown in popularity over the last few years. And following the COP26 summit, I’m looking at whether I should invest in the sector.
Why I’m looking at renewable energy stocks
There’s a compelling investment case for renewable energy stocks. Not only is this an ‘ethical’ sector, but this area is likely to benefit from widespread government support over the next decade.
According to an IEA report, though $750bn should be spent globally on clean energy technologies in 2021, spending would have to increase significantly to meet the 1.5% cap on temperature rises. This level of investment is likely to mean that this sector should enjoy substantial gains over the coming years.
What I’m looking at
I could invest in individual renewable energy stocks, but I like the idea of using an exchange traded fund (ETF). This allows me to invest in several companies while holding just one share.
The one I’m considering is iSHARES Global Clean Energy UCITS ETF (LSE: INRG). This ETF aims to track the performance of the S&P Global Clean Energy Index. It’s designed to measure the performance of companies in global clean energy-related businesses from both developed and emerging countries, while also taking into account the carbon footprint of these companies.
Looking at the fundamentals, this ETF is large at over $6bn, established (launched in 2007) and has good trading volume. I think the ongoing charge of 0.65% is reasonable.
Presently the ETF has 76 holdings. 44% is in US companies, while Chinese firms account for around 4.5% and investment in UK entities presently stands at just under 4%. I like the fact this ETF is diversified in terms of countries and companies. If any individual company fails or there are certain country-specific problems, the ETF should hold up pretty well. It also pays a small dividend, which currently stands at 0.73%.
Am I going to invest?
Year-to-date performance hasn’t been good, however. Currently, the fund is down around 15% this year and is about flat over a 12-month period.
The subdued 12-month performance could be due to a variety of reasons. Some of the US companies in this fund have most likely suffered because of bad weather affecting their output and hence their earnings (for example, in Texas). Also, the energy supply squeeze all around the world at the moment may have seen money move into more traditional energy companies.
However, over the last five years, the fund is up around 180%. I take this as an affirmation of the long-term credibility of this ETF.
Although some investors may feel differently, overall, I think that this ETF might be one of the best ways for me to invest in renewable energy stocks. I believe this sector can perform strongly over the coming decades and am upbeat about this ETF. For this reason, I will be seriously considering adding iShares Global Clean Energy UCITS ETF to my portfolio.