Clean Energy ETFs

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occambogle
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Clean Energy ETFs

Post by occambogle »

Hi,

Just interested if anyone here is invested in Clean Energy ETFs or has thoughts on them.

Many have performed extremely well this year: 2020~YTD
And, many performed below the overrall market for the previous decade: 2010~YTD

Is the recent performance just an anomaly, or the start of major shift? Are they already overvalued? Well I don't know the answers to those questions... but I'm looking at some of the main ETFs in this sector:

First Trust NASDAQ Clean Edge US Liquid (QCLN)
PowerShares Clean Energy (PBW)
iShares S&P Global Clean Energy Index ETF (ICLN)
Invesco Solar Portfolio (TAN)
PowerShares Global Clean Energy Portfolio (PBD)
Powershares Cleantech Portfolio (PZD)

I'm less-interested in QCLN & PBW as they are both about 85% U.S. and would prefer something more globally-diversified. I'm also not keen to have a heavy weighting of Tesla like QCLN does as I have enough of it already in some other ETFs.

ICLN and TAN are both reasonably-diversified globally (40% & 55% U.S.) with ICLN crossing across clean energy sectors and TAN focusing on solar only. PBD is Invesco's clean energy ETF, while PZD is their "clean tech" ETF, and both those are well diversified globally.

I'm not advocating this sector or any of these ETFs, I don't know enough yet, am just interested in a discussion and to learn more. Before anyone says "just own the total market" I checked overlap between ICLN and TAN with S&P500 and there are no companies held by them in the S&P500 (VOO). A couple of the individual companies are in Total Stock Market (VTI) but in tiny amounts and many of them not in VTI at all.

So, is anyone interested, knowledgeable or investing in this sector and have any opinions? Thanks.
alex_686
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Re: Clean Energy ETFs

Post by alex_686 »

occambogle wrote: Fri Sep 25, 2020 6:00 am Is the recent performance just an anomaly, or the start of major shift? Are they already overvalued?
It is not that clean energy is doing exceptionally well this year, but that carbon based stuff has done exceptionally poorly due to the COVID-19 lock down. IIRC the use of oil fell by 20% this year.

As for the future, I am optimistic on green energy but not these ETFs. I don't think there is a good pure play on this idea. You hinted at that with Tesla. A good chunk of clean energy is being developed by traditional energy companies, another good chunk by private. 75% of solar cell production is in China by state sponsored companies.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
occambogle
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Re: Clean Energy ETFs

Post by occambogle »

Thanks for your thoughts... appreciated.
alex_686 wrote: Fri Sep 25, 2020 6:55 am It is not that clean energy is doing exceptionally well this year, but that carbon based stuff has done exceptionally poorly due to the COVID-19 lock down. IIRC the use of oil fell by 20% this year.
If oil use decreased because overrall energy use decreased... why would that cause the clean energy sector to outperform as it seems to have done e.g. in the 2020~YTD graph above? Surely there must be increased flows into clean energy as well? There's also the government subsidy/investment aspect, in which I think the election result will play a large part, but I know we can't talk about politics here.
alex_686 wrote: Fri Sep 25, 2020 6:55 am As for the future, I am optimistic on green energy but not these ETFs. I don't think there is a good pure play on this idea. You hinted at that with Tesla. A good chunk of clean energy is being developed by traditional energy companies, another good chunk by private. 75% of solar cell production is in China by state sponsored companies.
Some good points there I think. I thought some of those ETFs also have holdings in "green" energy utility companies, as well as equipment providers/manufacturers, but could be wrong... and your point about a lot of it being done by larger non-green-focused companies is well taken. I guess it's a bit like cloud computing - sure there are lots of pure cloud computing companies, but much of it is done by Microsoft/Google etc.
Regarding China... I see a couple names listed one of which is Xinyi Solar Holdings Ltd, but can't seem to see if it is state-owned or not. It seems you've done your research though so I don't doubt the overrall point on that.
alex_686
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Re: Clean Energy ETFs

Post by alex_686 »

occambogle wrote: Fri Sep 25, 2020 7:37 am It seems you've done your research though so I don't doubt the overrall point on that.
I have done a fair amount of research, in the sense that I read a decent amount of broad issue quality new stuff with a focus on the financial stuff for many years. So think broad, not deep. There is some deep stuff that I read, but not on this exact issue. So I would encourage you to do your own digging.

As for oil, these companies tend to be asset heavy and leveraged. You have to pay the mortgage on the oil refinery and pipelines if you are using 50% or 100%. Once you tap a gas or oil well you have more or less got to run them. It can be hard or impossible to turn them off.

As for China, I do think it is a valid play. However you have the Communist party either being a back seat driver or actually in the front at the steering wheel. Profits may not be the first priority, respect of minority shareholder rights may not be in the first priority. It adds another dimension.

And a couple of more points.

It can be hard to turn good ideas into viable investment strategies. I think this is one case. You are not going to have much luck with a passive strategy, you need a active one. I am a boglehead that modestly advocates for active investing. Hard work (or luck) can lead to above average returns. Just know it is a tough nut to crack.

Which leads me to my second point, why clean energy? I am going to guess that it is because it is sexy and hot. Note, just because a industry has explosive growth in revenue does not mean it will delivery good returns to the owners. Even if there is explosive growth in earnings does not mean the stock price will go up - the stock may have been grossly overvalued to begin with. Once again, take a look at Tesla. Wonderful company, but maybe the stock price is a bit high.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
RetiredCSProf
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Re: Clean Energy ETFs

Post by RetiredCSProf »

About a year ago, I told my son's friend, a recent college grad in statistics, that I was considering investing in clean energy. He referenced the political / social environment (in the US) and suggested I wait a few years -- I dismissed his concerns, but decided to look at this as a investment in gobal green energy.

I purchased 378 shares of ICLN in my Roth account at Fido -- I am up about 40%.

I am considering expanding into other similarly-inclined global ETFs -- I am looking at QCLN, GRID, IDRV, KARS, ROBO, ROBT, EKAR and GMAN.
000
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Re: Clean Energy ETFs

Post by 000 »

For a concentrated fund with 50%+ in its top ten holdings, I'd rather just buy my own index sampling the underlying individual stocks than pay 0.40%+ ER, though maybe not for foreign stocks.

Anyway, I'd rather buy petroleum or nuclear stocks than solar, wind, or other "green" energy stocks right now.
Exchme
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Re: Clean Energy ETFs

Post by Exchme »

000 wrote: Fri Sep 25, 2020 7:08 pm For a concentrated fund with 50%+ in its top ten holdings, I'd rather just buy my own index sampling the underlying individual stocks than pay 0.40%+ ER, though maybe not for foreign stocks.

Anyway, I'd rather buy petroleum or nuclear stocks than solar, wind, or other "green" energy stocks right now.
I agree on this, petroleum and nuclear are beaten down and will probably make some money for those willing to stick it out.

I can't understand what technologies, let alone companies, are investable in the clean energy space. I work in the energy business and from time to time I'm asked to evaluate proposed clean energy ideas. Let's just say that it's easy to come up with lists of unresolved problems, wildly underestimated costs and environmental impacts, etc. But hey, there are huge subsidies and mandates, so money will definitely flow, I'm just too hard-headed to jump in.
aristotelian
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Re: Clean Energy ETFs

Post by aristotelian »

There aren't a ton of pure play clean energy stocks. Due to the high expense ratios of the ETFs in the space, this might be an instance to just pick some stocks. I own FSLR and it has done well enough for me.
Topic Author
occambogle
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Re: Clean Energy ETFs

Post by occambogle »

I sure wish I'd bought when I posted this thread, they've been rocketing up this week. I picked up a little ICLN on Monday though and it's already up 9%. Of course long-term is another thing entirely, and I fully expect it to be a wild ride. But I figured if I was going to do it at some point, then before the election was probably a better time.
The previous posters' points about how well these ETFs may be a good play (or rather not) on clean energy are well taken. As is the possibility that clean energy becomes more widespread but becomes a commodity and isn't super-profitable for particular companies. But I'm just not really into individual stocks, and I wanted something that was at least globally-diversified, so from the different options I desided on ICLN. Time will tell I guess.....
Valuethinker
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Re: Clean Energy ETFs

Post by Valuethinker »

Exchme wrote: Fri Sep 25, 2020 8:08 pm
000 wrote: Fri Sep 25, 2020 7:08 pm For a concentrated fund with 50%+ in its top ten holdings, I'd rather just buy my own index sampling the underlying individual stocks than pay 0.40%+ ER, though maybe not for foreign stocks.

Anyway, I'd rather buy petroleum or nuclear stocks than solar, wind, or other "green" energy stocks right now.
I agree on this, petroleum and nuclear are beaten down and will probably make some money for those willing to stick it out.
Nuclear it's very unclear. Hitachi declared bankruptcy, for example. EDF/ AREVA is not in good shape. No private sector entity is building new reactors (without big state guarantees). So China, yes. Russia, yes-- their reactor makers and operators are driving forward under state ownership. But in the western world? The handful of new build reactors are mostly way behind and over budget in both US & Europe.

You have this large legacy estate of reactors in developed countries, and utilities like Exelon (?) which run them. But wholesale power prices are down and operating a nuclear power station is about big fixed costs. Hence the closure of reactors like Vermont Yankee and that one in Wisconsin - singleton plants with relatively high operating costs. So the companies are basically plays on the electricity price in their regional power pools due to their high operational gearing.

Oil is another kettle of fish. I would aim for the producers with the highest quality operations and balance sheets (EOG?) - in the fracking space. Whether oil sands companies make money is very dependent on a recovery in oil prices. It's a pretty good bet that it will be the low cost producers that survive long enough to enjoy the upturn. And of course many of those (Saudi Aramco) are state controlled.
I can't understand what technologies, let alone companies, are investable in the clean energy space. I work in the energy business and from time to time I'm asked to evaluate proposed clean energy ideas. Let's just say that it's easy to come up with lists of unresolved problems, wildly underestimated costs and environmental impacts, etc. But hey, there are huge subsidies and mandates, so money will definitely flow, I'm just too hard-headed to jump in.
Compare at TV now to a TV in 1968. The western manufacturers like Philips, Electrohome, GE etc have all gone out of the industry.

TVs are vastly bigger and more capable - unimaginably so if you look at it from a 1968 perspective (remember the old CRT screens in Alien & Star Wars? and Blade Runner-- 1979-82 films about "the future"). Houses don't have one tv, they have 3 or 4 (or 5 or 6) and the main TV is this behemoth, or even a home cinema.

But do TV makers now make huge amounts of money with this vastly bigger market of vastly more capable TVs?

Compare a 1930 American car to a 2020 American car, you'd imagine automakers were a fantastic business to be in.

And in fact in neither case is this true. Even genuinely super protected companies, like Kodak, have gone.

And that's capitalism, in a nutshell. Joseph Schumpeter described it very well (so did Karl Marx). An industry earns superior returns, for a time, and this attracts capital and in time new competitors. You get chance in technology and a collapse in the cost of providing something, and consumers benefit, other manufacturers that use your products may benefit, but you don't.

That's what is happening to electricity generation. It's being disrupted by new competitors which are potentially lower cost (solar is nowhere near done on the move down the cost curve, wind improvements will be incremental).

In many localities, wind or solar are now the lowest cost solutions.
Exchme
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Re: Clean Energy ETFs

Post by Exchme »

Valuethinker wrote: Thu Oct 08, 2020 9:56 am
Exchme wrote: Fri Sep 25, 2020 8:08 pm
000 wrote: Fri Sep 25, 2020 7:08 pm For a concentrated fund with 50%+ in its top ten holdings, I'd rather just buy my own index sampling the underlying individual stocks than pay 0.40%+ ER, though maybe not for foreign stocks.

Anyway, I'd rather buy petroleum or nuclear stocks than solar, wind, or other "green" energy stocks right now.
I agree on this, petroleum and nuclear are beaten down and will probably make some money for those willing to stick it out.
Nuclear it's very unclear. Hitachi declared bankruptcy, for example. EDF/ AREVA is not in good shape. No private sector entity is building new reactors (without big state guarantees). So China, yes. Russia, yes-- their reactor makers and operators are driving forward under state ownership. But in the western world? The handful of new build reactors are mostly way behind and over budget in both US & Europe.

You have this large legacy estate of reactors in developed countries, and utilities like Exelon (?) which run them. But wholesale power prices are down and operating a nuclear power station is about big fixed costs. Hence the closure of reactors like Vermont Yankee and that one in Wisconsin - singleton plants with relatively high operating costs. So the companies are basically plays on the electricity price in their regional power pools due to their high operational gearing.

Oil is another kettle of fish. I would aim for the producers with the highest quality operations and balance sheets (EOG?) - in the fracking space. Whether oil sands companies make money is very dependent on a recovery in oil prices. It's a pretty good bet that it will be the low cost producers that survive long enough to enjoy the upturn. And of course many of those (Saudi Aramco) are state controlled.
I can't understand what technologies, let alone companies, are investable in the clean energy space. I work in the energy business and from time to time I'm asked to evaluate proposed clean energy ideas. Let's just say that it's easy to come up with lists of unresolved problems, wildly underestimated costs and environmental impacts, etc. But hey, there are huge subsidies and mandates, so money will definitely flow, I'm just too hard-headed to jump in.
Compare at TV now to a TV in 1968. The western manufacturers like Philips, Electrohome, GE etc have all gone out of the industry.

TVs are vastly bigger and more capable - unimaginably so if you look at it from a 1968 perspective (remember the old CRT screens in Alien & Star Wars? and Blade Runner-- 1979-82 films about "the future"). Houses don't have one tv, they have 3 or 4 (or 5 or 6) and the main TV is this behemoth, or even a home cinema.

But do TV makers now make huge amounts of money with this vastly bigger market of vastly more capable TVs?

Compare a 1930 American car to a 2020 American car, you'd imagine automakers were a fantastic business to be in.

And in fact in neither case is this true. Even genuinely super protected companies, like Kodak, have gone.

And that's capitalism, in a nutshell. Joseph Schumpeter described it very well (so did Karl Marx). An industry earns superior returns, for a time, and this attracts capital and in time new competitors. You get chance in technology and a collapse in the cost of providing something, and consumers benefit, other manufacturers that use your products may benefit, but you don't.

That's what is happening to electricity generation. It's being disrupted by new competitors which are potentially lower cost (solar is nowhere near done on the move down the cost curve, wind improvements will be incremental).

In many localities, wind or solar are now the lowest cost solutions.
Great post! On tight oil (shale) producers, I would avoid those companies that bought in at the peak. Profits will come back for all of oil and gas as prices rise, but a lot of people dove in at the wrong time.

I keep hearing next generation nuclear being touted, but let's see one get built and the bugs worked out. Your story about existing nuclear reminds me of news story I saw in the 80's. The utility company in south Texas managed the build of the nuclear plant so badly that it was years late. So they requested a rate increase on the basis that they had saved the consumers money by being late on start up of the plant since it would have produced high cost power that nobody needed anyway. Brilliant thinking!

On your last point, without going too far down the rabbit hole, obviously renewable power is not dispatchable, meaning it's there only when the wind blows or the sun shines or needs costly storage added. Cost comparisons that make it look favorable exclude the subsidies, mandates, and externalities like forcing a natural gas power plant to cycle up and down or grid balances to change suddenly. Finding a winner among renewable technologies or companies is less about finding the next great invention like a TV or car than traditional investors are used to thinking about since the economics are driven by politicians attempts to mitigate possible fossil fuel externalities and not traditional measures of value. The manufacturing of solar collectors and windmills is also generally in China, adding a further level of opacity.
RetiredCSProf
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Re: Clean Energy ETFs

Post by RetiredCSProf »

When the market dropped, toward the end of the trading day a couple days ago, only two of my funds were in the black: clean air (ICLN) and clean water -- INVESCO EXCHANGE TRADED FD TR WATER RES ETF (PHO). Wish I had bought more back in March.
fingoals
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Re: Clean Energy ETFs

Post by fingoals »

Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
Topic Author
occambogle
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Re: Clean Energy ETFs

Post by occambogle »

fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
Most of the clean energy ETFs rose about 10% during election week. While a Biden presidency is more likely to favor clean energy, I think two things could limit growth.... (a) The US is not the only consumer/producer of clean energy, and I don't see how international would be affected one way or another, and (b) from my reading there is a feeling that if democrats don't hold the senate there is less chance of getting through a large fiscal program that would favor clean energy.
I am not making any political point, just outlining something I've read that regarding prospects of a fiscal boost to clean energy. All of that said, I feel clean energy has a strong future regardless of who is in power. Whether that translates into profits for the companies held in the different ETFs is anyone's guess.
fingoals
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Re: Clean Energy ETFs

Post by fingoals »

occambogle wrote: Sun Nov 15, 2020 2:31 am
fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
Most of the clean energy ETFs rose about 10% during election week. While a Biden presidency is more likely to favor clean energy, I think two things could limit growth.... (a) The US is not the only consumer/producer of clean energy, and I don't see how international would be affected one way or another, and (b) from my reading there is a feeling that if democrats don't hold the senate there is less chance of getting through a large fiscal program that would favor clean energy.
I am not making any political point, just outlining something I've read that regarding prospects of a fiscal boost to clean energy. All of that said, I feel clean energy has a strong future regardless of who is in power. Whether that translates into profits for the companies held in the different ETFs is anyone's guess.
I appreciate your thoughtful comment and agree with your major points. Let's see what other people think on this ...
Valuethinker
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Re: Clean Energy ETFs

Post by Valuethinker »

fingoals wrote: Sun Nov 15, 2020 2:38 am
occambogle wrote: Sun Nov 15, 2020 2:31 am
fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
Most of the clean energy ETFs rose about 10% during election week. While a Biden presidency is more likely to favor clean energy, I think two things could limit growth.... (a) The US is not the only consumer/producer of clean energy, and I don't see how international would be affected one way or another, and (b) from my reading there is a feeling that if democrats don't hold the senate there is less chance of getting through a large fiscal program that would favor clean energy.
I am not making any political point, just outlining something I've read that regarding prospects of a fiscal boost to clean energy. All of that said, I feel clean energy has a strong future regardless of who is in power. Whether that translates into profits for the companies held in the different ETFs is anyone's guess.
I appreciate your thoughtful comment and agree with your major points. Let's see what other people think on this ...
Net zero is a thing and it is going global. The Chinese government has bought into it for 2060 (w caveats) and other countries like the UK 2050.

However it is impossible to pick the long term winners. The stock price of Tesla for example is priced for perfect timing and execution (at the least).

So forgetting the USA, this thing is happening. My own view is that this will accelerate as the costs of achieving it fall. The drop in cost per kW (Levelised Cost of Energy LCOE) is nothing short of stunning for wind, offshore wind, solar PV. Storage remains the big new "blank space" for innovation. That and nanomaterials in the CCS dimension.

I don't favour sectoral investing. Because there's too much uncertainty, the solutions will be throughout the economy and cost trillions, literally. Maybe it is Shell and its EV charging?

Better to Total Stock Market index, and make strategic donations to groups pushing in the right direction in my view.

And save the rainforest. That's the cheapest easiest win on the planet.
000
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Re: Clean Energy ETFs

Post by 000 »

fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
I think you missed the boat. I would basically assume that all the reasons you give are already priced in by the market. Clean energy ETFs are likely to be both less risky and less attractive now IMO. Perhaps there will be a good entry point ahead when there is a lot of negative news (or at least, market indifference) towards the businesses in these funds.
fingoals
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Re: Clean Energy ETFs

Post by fingoals »

Valuethinker wrote: Sun Nov 15, 2020 6:56 am
fingoals wrote: Sun Nov 15, 2020 2:38 am
occambogle wrote: Sun Nov 15, 2020 2:31 am
fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
Most of the clean energy ETFs rose about 10% during election week. While a Biden presidency is more likely to favor clean energy, I think two things could limit growth.... (a) The US is not the only consumer/producer of clean energy, and I don't see how international would be affected one way or another, and (b) from my reading there is a feeling that if democrats don't hold the senate there is less chance of getting through a large fiscal program that would favor clean energy.
I am not making any political point, just outlining something I've read that regarding prospects of a fiscal boost to clean energy. All of that said, I feel clean energy has a strong future regardless of who is in power. Whether that translates into profits for the companies held in the different ETFs is anyone's guess.
I appreciate your thoughtful comment and agree with your major points. Let's see what other people think on this ...
Net zero is a thing and it is going global. The Chinese government has bought into it for 2060 (w caveats) and other countries like the UK 2050.

However it is impossible to pick the long term winners. The stock price of Tesla for example is priced for perfect timing and execution (at the least).

So forgetting the USA, this thing is happening. My own view is that this will accelerate as the costs of achieving it fall. The drop in cost per kW (Levelised Cost of Energy LCOE) is nothing short of stunning for wind, offshore wind, solar PV. Storage remains the big new "blank space" for innovation. That and nanomaterials in the CCS dimension.

I don't favour sectoral investing. Because there's too much uncertainty, the solutions will be throughout the economy and cost trillions, literally. Maybe it is Shell and its EV charging?

Better to Total Stock Market index, and make strategic donations to groups pushing in the right direction in my view.

And save the rainforest. That's the cheapest easiest win on the planet.
Thank you for sharing your thoughts on this topic. Much appreciated.
fingoals
Posts: 1511
Joined: Thu Jan 24, 2019 5:43 pm

Re: Clean Energy ETFs

Post by fingoals »

000 wrote: Sun Nov 15, 2020 3:01 pm
fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
I think you missed the boat. I would basically assume that all the reasons you give are already priced in by the market. Clean energy ETFs are likely to be both less risky and less attractive now IMO. Perhaps there will be a good entry point ahead when there is a lot of negative news (or at least, market indifference) towards the businesses in these funds.
Thank you for sharing your insights. I don't understand one point, though. Following your logic of an asset or asset class being less attractive because all relevant information is already priced in, index investing should be considered not very much attractive as well. Because, to the best of my knowledge, Bogleheads philosophy subscribes to the assumption that all available information about the market is always priced in (efficient market hypothesis / EMH). By the way, interestingly enough, the relevant foundational wiki document on this forum never mentions EMH - I'm wondering why ... :confused
000
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Re: Clean Energy ETFs

Post by 000 »

fingoals wrote: Sun Nov 15, 2020 3:33 pm
000 wrote: Sun Nov 15, 2020 3:01 pm
fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
I think you missed the boat. I would basically assume that all the reasons you give are already priced in by the market. Clean energy ETFs are likely to be both less risky and less attractive now IMO. Perhaps there will be a good entry point ahead when there is a lot of negative news (or at least, market indifference) towards the businesses in these funds.
Thank you for sharing your insights. I don't understand one point, though. Following your logic of an asset or asset class being less attractive because all relevant information is already priced in, index investing should be considered not very much attractive as well. Because, to the best of my knowledge, Bogleheads philosophy subscribes to the assumption that all available information about the market is always priced in (efficient market hypothesis / EMH). By the way, interestingly enough, the relevant foundational wiki document on this forum never mentions EMH - I'm wondering why ... :confused
A few things:

Bogle-style index investing doesn't depend on the EMH per se, it really only requires the underlying securities to be sufficiently liquid; then, it follows that the cap-weighted average investor in a given universe of securities gets the return of the index of that universe gross of fees, and usually indexing has lower cost and thus higher net return than active strategies.

Now, as to certain stock sector being "priced in", what I mean by this is that I expect it to perform about the same as a broad fund. It could be better or worse, but the "expected" outcome is probably along the lines of an index fund. OTOH, if you had got into clean energy stocks before the election results were solidified AND you understood better than the market the likelihood of various election outcomes, you might have been able to generate alpha.

Basically, IMO you need to understand something better than the market (e.g. realizing in Feb 2020 that the likelihood of a Covid shutdown wasn't being priced in) or be able to access it better than other arbitrageurs (perhaps microcaps) in order to make trying to beat the index a worthwhile effort. If you're acting on widely known and priced in information (e.g. Biden election = more chance of clean energy stocks doing well) after it's already been priced in, I think it will be very hard to generate alpha over the index.
fingoals
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Re: Clean Energy ETFs

Post by fingoals »

000 wrote: Sun Nov 15, 2020 3:54 pm
fingoals wrote: Sun Nov 15, 2020 3:33 pm
000 wrote: Sun Nov 15, 2020 3:01 pm
fingoals wrote: Sat Nov 14, 2020 11:05 pm Just wanted to refresh this thread, considering the de facto election results and relevant clean energy programs proposed and planned by the Biden team. How much more attractive and less risky would investing in clean energy ETFs be considered now?
I think you missed the boat. I would basically assume that all the reasons you give are already priced in by the market. Clean energy ETFs are likely to be both less risky and less attractive now IMO. Perhaps there will be a good entry point ahead when there is a lot of negative news (or at least, market indifference) towards the businesses in these funds.
Thank you for sharing your insights. I don't understand one point, though. Following your logic of an asset or asset class being less attractive because all relevant information is already priced in, index investing should be considered not very much attractive as well. Because, to the best of my knowledge, Bogleheads philosophy subscribes to the assumption that all available information about the market is always priced in (efficient market hypothesis / EMH). By the way, interestingly enough, the relevant foundational wiki document on this forum never mentions EMH - I'm wondering why ... :confused
A few things:

Bogle-style index investing doesn't depend on the EMH per se, it really only requires the underlying securities to be sufficiently liquid; then, it follows that the cap-weighted average investor in a given universe of securities gets the return of the index of that universe gross of fees, and usually indexing has lower cost and thus higher net return than active strategies.

Now, as to certain stock sector being "priced in", what I mean by this is that I expect it to perform about the same as a broad fund. It could be better or worse, but the "expected" outcome is probably along the lines of an index fund. OTOH, if you had got into clean energy stocks before the election results were solidified AND you understood better than the market the likelihood of various election outcomes, you might have been able to generate alpha.

Basically, IMO you need to understand something better than the market (e.g. realizing in Feb 2020 that the likelihood of a Covid shutdown wasn't being priced in) or be able to access it better than other arbitrageurs (perhaps microcaps) in order to make trying to beat the index a worthwhile effort. If you're acting on widely known and priced in information (e.g. Biden election = more chance of clean energy stocks doing well) after it's already been priced in, I think it will be very hard to generate alpha over the index.
Understood. Much appreciate your prompt and detailed reply. I would be grateful if you could also clarify the following aspects for me.

From a purely statistical point of view, index investing seems to rely on an assumption that, out of all instruments in an asset class, there always be enough outperforming instruments, so that index prices can grow. To convert this into a trivial example (by not considering different performance rates of different instruments within an asset class), that would mean that, for continuous market growth scenario, one would expect that there will always be a majority of companies in VTSAX outperforming the minority. But what fundamentals such an assumption would be based on? On the surface, it does not make sense.

In addition to that, if I understand correctly, index investing is based on the assumption of economic growth, which is mostly based on productivity growth. However, to the best of my knowledge, macroeconomics does not guarantee an indefinite economic growth. If so, index investing, as a long-term investing strategy, is at the mercy of economic cycles as a major macroeconomic factor. Thus, to put simply, index investing works in bull markets, but not in bear markets. And, so, essentially, we hope that bull markets will last longer than the bear ones, over the course of our investment lifetimes.
000
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Re: Clean Energy ETFs

Post by 000 »

fingoals wrote: Sun Nov 15, 2020 4:48 pm Understood. Much appreciate your prompt and detailed reply. I would be grateful if you could also clarify the following aspects for me.

From a purely statistical point of view, index investing seems to rely on an assumption that, out of all instruments in an asset class, there always be enough outperforming instruments, so that index prices can grow. To convert this into a trivial example (by not considering different performance rates of different instruments within an asset class), that would mean that, for continuous market growth scenario, one would expect that there will always be a majority of companies in VTSAX outperforming the minority. But what fundamentals such an assumption would be based on? On the surface, it does not make sense.

In addition to that, if I understand correctly, index investing is based on the assumption of economic growth, which is mostly based on productivity growth. However, to the best of my knowledge, macroeconomics does not guarantee an indefinite economic growth. If so, index investing, as a long-term investing strategy, is at the mercy of economic cycles as a major macroeconomic factor. Thus, to put simply, index investing works in bull markets, but not in bear markets. And, thus, essentially, we hope that bull markets will last longer than the bear ones over our investment lifetimes.
Well, if "the stock market" begins to have more losers than winners in cap-weighted terms, then both the index fund representing that stock market and the cap-weighted average active strategy participating in the same market will have negative returns. So in the scenario you propose in which there is a cessation of stock growth, the active strategies won't be a haven.

In the context of your post at the top of this chain, I assumed you were considering swapping from some other stocks (perhaps US total stock market) to clean energy stocks, which I don't think can reasonably expected to increase risk-adjusted return unless, again, you are more correct about the future of those stocks than current market pricing.

Now, what about an active strategy that times various asset classes? If we compare that to a theoretical cap-weighted index of all the asset classes the active strategy is willing to invest in, I would expect the average such active strategy to perform identically to such an index gross of fees.

But this doesn't mean one should never use an active fund or strategy. Sometimes there is no investable index that actually represents the average of a particular asset class. For example, real estate is an important and widely held asset, but there is no index representing all or even a significant part of real estate. Nevertheless, if one chooses to invest in real estate, one should not expect higher-than-average returns unless one has skill. The fact that there is no investable total real estate market index does not mean that those investing in real estate are generating alpha, it just means we lack a benchmark, i.e. we are ignorant about what the average/index performance really is.
fingoals
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Re: Clean Energy ETFs

Post by fingoals »

000 wrote: Sun Nov 15, 2020 5:35 pm
fingoals wrote: Sun Nov 15, 2020 4:48 pm Understood. Much appreciate your prompt and detailed reply. I would be grateful if you could also clarify the following aspects for me.

From a purely statistical point of view, index investing seems to rely on an assumption that, out of all instruments in an asset class, there always be enough outperforming instruments, so that index prices can grow. To convert this into a trivial example (by not considering different performance rates of different instruments within an asset class), that would mean that, for continuous market growth scenario, one would expect that there will always be a majority of companies in VTSAX outperforming the minority. But what fundamentals such an assumption would be based on? On the surface, it does not make sense.

In addition to that, if I understand correctly, index investing is based on the assumption of economic growth, which is mostly based on productivity growth. However, to the best of my knowledge, macroeconomics does not guarantee an indefinite economic growth. If so, index investing, as a long-term investing strategy, is at the mercy of economic cycles as a major macroeconomic factor. Thus, to put simply, index investing works in bull markets, but not in bear markets. And, thus, essentially, we hope that bull markets will last longer than the bear ones over our investment lifetimes.
Well, if "the stock market" begins to have more losers than winners in cap-weighted terms, then both the index fund representing that stock market and the cap-weighted average active strategy participating in the same market will have negative returns. So in the scenario you propose in which there is a cessation of stock growth, the active strategies won't be a haven.

In the context of your post at the top of this chain, I assumed you were considering swapping from some other stocks (perhaps US total stock market) to clean energy stocks, which I don't think can reasonably expected to increase risk-adjusted return unless, again, you are more correct about the future of those stocks than current market pricing.

Now, what about an active strategy that times various asset classes? If we compare that to a theoretical cap-weighted index of all the asset classes the active strategy is willing to invest in, I would expect the average such active strategy to perform identically to such an index gross of fees.

But this doesn't mean one should never use an active fund or strategy. Sometimes there is no investable index that actually represents the average of a particular asset class. For example, real estate is an important and widely held asset, but there is no index representing all or even a significant part of real estate. Nevertheless, if one chooses to invest in real estate, one should not expect higher-than-average returns unless one has skill. The fact that there is no investable total real estate market index does not mean that those investing in real estate are generating alpha, it just means we lack a benchmark, i.e. we are ignorant about what the average/index performance really is.
Thank you so much for your clarifications. I will re-read your comment later to make sure that I fully understand all valuable insights. :beer
DesertInvestor
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Re: Clean Energy ETFs

Post by DesertInvestor »

RetiredCSProf wrote: Thu Oct 08, 2020 2:44 pm When the market dropped, toward the end of the trading day a couple days ago, only two of my funds were in the black: clean air (ICLN) and clean water -- INVESCO EXCHANGE TRADED FD TR WATER RES ETF (PHO). Wish I had bought more back in March.
ICLN has taken a beating in 2021. how do people still feel about this? I am a four fund investor with 10% small value tilt. I would be willing to put another 5% in AI or clean energy (trends of the future) as a long term holding.
RetiredCSProf
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Re: Clean Energy ETFs

Post by RetiredCSProf »

I continue to hold both ICLIN and PHO. Together, they represent about 5% of my Roth IRA at Fido. They were purchased in 4th quarter 2019 and I am in the green on both.

This year, I moved about 5% of my Fido Roth into iShares US Transportation (IYT) and Home Construction (IYB) instead of adding to clean air and clean water. I rely on a crystal ball to tell me where to invest my "fun money."
DesertInvestor
Posts: 489
Joined: Tue Dec 20, 2016 12:04 pm

Re: Clean Energy ETFs

Post by DesertInvestor »

occambogle wrote: Fri Sep 25, 2020 6:00 am Hi,

Just interested if anyone here is invested in Clean Energy ETFs or has thoughts on them.

Many have performed extremely well this year: 2020~YTD
And, many performed below the overrall market for the previous decade: 2010~YTD

Is the recent performance just an anomaly, or the start of major shift? Are they already overvalued? Well I don't know the answers to those questions... but I'm looking at some of the main ETFs in this sector:

First Trust NASDAQ Clean Edge US Liquid (QCLN)
PowerShares Clean Energy (PBW)
iShares S&P Global Clean Energy Index ETF (ICLN)
Invesco Solar Portfolio (TAN)
PowerShares Global Clean Energy Portfolio (PBD)
Powershares Cleantech Portfolio (PZD)

I'm less-interested in QCLN & PBW as they are both about 85% U.S. and would prefer something more globally-diversified. I'm also not keen to have a heavy weighting of Tesla like QCLN does as I have enough of it already in some other ETFs.

ICLN and TAN are both reasonably-diversified globally (40% & 55% U.S.) with ICLN crossing across clean energy sectors and TAN focusing on solar only. PBD is Invesco's clean energy ETF, while PZD is their "clean tech" ETF, and both those are well diversified globally.

I'm not advocating this sector or any of these ETFs, I don't know enough yet, am just interested in a discussion and to learn more. Before anyone says "just own the total market" I checked overlap between ICLN and TAN with S&P500 and there are no companies held by them in the S&P500 (VOO). A couple of the individual companies are in Total Stock Market (VTI) but in tiny amounts and many of them not in VTI at all.

ICLN has been crushed year to date. Has you strategy changed at all since then? I'm considering it myself, but if you look since 2008 its still not back to where it was at its founding.

So, is anyone interested, knowledgeable or investing in this sector and have any opinions? Thanks.
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