The Canadian renewal energy ETF field includes a diverse group of industries such as electric vehicles, utilities, software companies and solar panel makers.JEFFREY GROENEWEG/AFP/Getty Images
Most investors understand that the energy market is susceptible to unpredictable swings. That holds double for the renewable energy sector, which isn’t just sensitive to overarching energy price swings but to political support for greener technologies.
Russia’s recent invasion of neighbouring Ukraine has supercharged the renewable or clean energy ETF space as Western governments reiterate the need for economies to wean their dependence on geopolitically sensitive fuels.
Renewable energy ETFs are hot right now, but they aren’t for the faint of heart as public sentiment and support can play as much of a factor in their valuations as private-sector fundamentals. Most are still down from the start of 2022 but have rebounded noticeably since the start of the Ukraine conflict.
“The renewable energy sector follows its own unique boom-bust cycle driven by government policies,” says Linda Ma, an ETF analyst with National Bank of Canada Financial Markets in Toronto. In fact, the sector was in a decade-long slump after the global financial crisis only to revive with the U.S. government’s push for more green energy after the Biden administration’s infrastructure plan.
Ms. Ma notes that the Canadian renewable energy ETF field includes a diverse group of industries such as electric vehicles (EVs), utilities, software companies and solar-panel makers, so performance can vary widely based on specific factors.
The biggest Canadian funds are the BMO Clean Energy Index ETF (ZCLN-T) and the Harvest Clean Energy ETF class A (HCLN-T), which both feature heavy exposure (about 50 per cent each) to utilities.
ZCLN, with an expense ratio of 0.40 per cent and assets of $84.8-million, has been relatively flat so far this year, having rallied since late February. (All data are as of March 23.) It tracks the S&P Clean Energy index. It’s the same index used by the U.S.-listed iShares Global Clean Energy ETF (ICLN-Q). iShares has filed a prospectus to bring ICLN to the Canadian ETF market.
Harvest’s HCLN fund doesn’t track an index but provides exposure to the 40 largest companies in the clean energy sector. Its holdings are equal-weighted, which means less concentration on top holdings compared with ZCLN, Ms. Ma notes.
One clean energy ETF that may grab some attention in the future, the analyst adds, is Horizon’s Global Hydrogen Index (HYDR-T), with the European Union’s new RePowerEu energy plan’s focus on electrification and renewable hydrogen.
HYDR seeks to match the performance of the Solactive Global Hydrogen Index and hedges U.S. dollar exposure. It carries a management fee of 0.75 per cent, with $3.6-million in assets, and has fallen by about 5 per cent year-to-date.
A trio of Canadian renewable and clean energy ETFs offer exposure to the fast-growing EV makers and EV darling Tesla Inc.
They are the CIBC Clean Energy Index ETF (CCLN-NE), which charges 0.35 per cent and is down 5.8 per cent; the First Trust NASDAQ Clean Edge Green Energy Index ETF (QCLN-T), which charges 0.77 per cent and is down 8 per cent year to date; as well as the Evolve Automotive Innovation ETF (CARS-T), which costs 0.63 per cent and has dropped by about 16 per cent so far this year.
The other Canadian clean energy ETF is the Dynamic Active Energy Evolution ETF (DXET-T), which charges 0.85 per cent and has fallen by about 3 per cent year-to-date.
Alternative energy “is a fairly new area,” says Nicolas Piquard, a portfolio manager and options strategist at Horizons ETFs Management (Canada) Inc. in Toronto.
Besides its hydrogen ETF, Horizons offers two other thematic funds. The first, the Horizons Global Uranium ETF (HURA-T), launched in 2019, focuses on global uranium producers. It charges 0.85 per cent and has $65.1-million in assets. The fund has returned about 13 per cent so far this year and rose by about 71 per cent and 66 per cent in 2021 and 2020, respectively.
“It has done very well and is the only ETF focused on uranium in the Canadian marketplace,” Mr. Piquard says.
The firm also launched Canada’s first ETF focused on the mining and production of lithium, which is a key metal in rechargeable batteries for electronics and, more importantly, electric and hybrid vehicles.
The Horizons Global Lithium Producers Index (HLIT-T) charges 0.75 per cent and has a year-to-date return of 12 per cent.
U.S.-listed clean energy ETFs generally did well in 2019 and 2020 and stumbled last year as the pandemic shook up global trade and the new U.S. administration faced delays implementing its infrastructure plan.
Last year was a down year for clean energy funds because of supply disruptions related to the pandemic as well as delays in implementing the Biden administration’s green energy-focused infrastructure spending plan, says Neena Mishra, director of ETF research with Zacks Investment Research in Chicago.
Her top picks are two of the older U.S. clean energy funds: iShares (ICLN-Q), which charges 0.42 per cent and has a whopping US$5.6-billion in assets; and the Invesco Solar ETF (TAN-A), which charges 0.66 per cent and has US$2.6-billion in assets.
The iShares fund has a negative return of 0.99 per cent so far in 2022 and dropped 24 per cent last year but was a star in 2020 and 2019, producing gains of about 142 per cent and 44 per cent respectively. TAN, which is down by about 1 per cent so far this year and off 25 per cent in 2021, was the top performer among U.S. clean energy ETFs the prior two years with gains of 234 per cent and 67 per cent for 2020 and 2019, respectively.
Ms. Mishra also likes the Invesco WilderHill Clean Energy ETF (PBW-Q), which charges 0.61 per cent, has US$1.6-billion in assets and is off 8.9 per cent year-to-date. (It had a negative year in 2021 and great returns in the prior two years, like the other U.S. funds in the space.)
One final ETF on her list is the SPDR Kensho Clean Power ETF (CNRG-A), which is relatively new having launched in 2018. The fund charges 0.45 per cent and has returned 1.07 per cent year-to-date.
The transition to cleaner energy will move in fits and starts and test investors, the Zacks analyst says.
“So, if you can stomach the wild rides in between then some allocation makes sense,” Ms. Mishra says.
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