Cboe Global Markets : Good Timing For This Alternative Energy ETF

Good Timing For This Alternative Energy ETF

ETF Professor 7/1/2019 6:31:04 AM

The ALPS Clean Energy ETF (CBOE: ACES), an exchange traded fund with exposure to multiple clean energy themes, debuted about a year ago and it appears its timing was excellent and not just because the fund is up 30.51% this year.

What Happened

ACES and its index bring a fresh approach to alternative energy investing and that goes beyond not focusing on single industry, such as solar or wind, as many older clean energy funds do.

'First, by narrowing the list of constituents to companies whose primary operations are focused on clean energy, the fund offers more pure-play exposure to the sector,' according to ALPS.

'Second, constituents are diversified across the sector offering exposure to the full opportunity set of this transition, and also helps to minimize the risk of investing in a single sub-segment. Lastly, focusing on U.S. and Canadian based companies helps to further minimize the risk of investing in a global industry by reducing risks related to foreign holdings, including currency exchange rates, financial disclosures, and regulatory and policy changes.'

Why It's Important

What's important about ACES is the strong fundamentals underpinning the alternative energy market, plenty of which are coming at the expense of traditional fossil fuels like coal.

'US power generation from coal totaled 60.1 TWh in April, down 23.4% from March and 18.1% lower than the year-ago month,' according to S&P Global Platts. 'The figure was the lowest month in over 47 years, including below the previous record of 62.87 TWh generated from coal in April 1974.'

Data confirm that renewable energy sources, including hydro, solar and wind, surpassed coal in April.

'Generation from renewables, including hydro and solar, was at a record-high 68.48 TWh in April, up 7.2% from March and 2.7% from the year-ago month,' notes S&P Global. 'Renewable's power generation share was at 23.2%, up from 18.8% in March and 22.1% a year ago. It was the first time ever that power generation from renewables were higher than coal in a month.'

Themes featured in ACES include solar, wind, biomass, hydro/geothermal, smart grid, electric vehicles and related storage and fuel cell technology. Wind and solar stocks combine for almost 48% of the fund's weight.

What's Next

Data indicate power from wind and solar made double-digit gains in April, a theme that if persistent, could be significant for investors in ACES.

'Generation from wind and solar made up 10.2% and 2.4% of the total power in April, respectively, up from 8.1% and 1.9% in March, and 2.1% and 8.9% in the year-ago month,' notes S&P Global. '

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