The world has embarked on a clean energy revolution as it looks to prevent climate change from spiralling out of control and this offers a massive opportunity to investors.
We’re in a race against time after the UN’s Intergovernmental Panel on Climate Change issued a Code Red for the planet earlier this month, saying the threat is “widespread, rapid and intensifying”.
Clean, green renewable energy can help us win that race and power up your portfolio, too, says Vijay Valecha, chief investment officer at Century Financial in Dubai. He has drawn up a list of top 10 stocks and 10 exchange-traded funds (ETFs) that could fire you into the future.
His stock and ETF picks invest in areas such as wind, solar and hydrogen, electric cars and charging stations, and battery technology.
“As money pours into these sectors, the returns can be dramatic, but you should expect some volatility along the way,” Mr Valecha says.
The past 12 months have been positive for the clean energy sector and all the stocks and funds listed here have posted healthy growth. However, most are down year-to-date after the sector peaked in early February, which could be a buying opportunity.
As always, this is no guarantee of future returns in what can be a volatile sector, so make sure you understand the risks.
“Do not throw all your money into clean energy stocks and ETFs, but invest as part of a globally balanced portfolio,” Mr Valecha says.
If investing in more than one of these stocks or funds, check you are not doubling up on the same companies, as names such as Tesla, Enphase Energy and Solar Power are top holdings in many of these ETF portfolios.
Clean energy stocks are mostly suitable for investors seeking growth as only a handful pay dividends.
Here are Mr Valecha’s top picks, starting with shares.
1. Clearway Energy
US wind and solar specialist Clearway Energy has developed a balanced, cash-generating business model, Mr Valecha says. “Clearway’s primary strategy is to acquire assets with conventional, long-term cash flows, and should grow its dividend over time.”
Stock Exchange: NYSE
Market cap: $3.52 billion
Yield: 4.36 per cent
One-year return: 19.36 per cent
2. NextEra Energy Partners
NextEra is the world’s largest producer of wind and solar energy, Mr Valecha says. “Unusually for this sector, it offers both growth and income and is targeting a 12 to 15 per cent average annual growth in dividends through 2024.”
NextEra also owns substantial natural gas, transmission, energy storage and nuclear assets.
Stock Exchange: NYSE
Market cap: $6.07bn
Yield: 3.37 per cent
One-year return: 26.6 per cent
3. Enphase Energy
California-based Enphase specialises in power inverters and control systems for solar installations, Mr Valecha says. “It devises and sells software-driven home energy solutions and energy storage, and has enjoyed healthy demand for its microinverters.”
Stock Exchange: NasdaqGM
Market cap: $22.55bn
Yield: N/A
One-year return: 123.52 per cent
4. Brookfield Renewable Partners
Brookfield Renewable operates one of the world’s largest publicly traded renewable power platforms and has generating facilities in North America, South America, Europe and Asia. It aims to deliver long-term annualised total returns of 12 to 15 per cent.
Brookfield is causing a lot of the disruption to the oil and gas sector, Mr Valecha says. “It is creating value by prudently acquiring, building and financing assets.”
Stock Exchange: NYSE
Market cap: $10.49bn
Yield: 3.14 per cent
One-year return: 23.50 per cent
5. Tesla
Elon Musk’s pioneering electric car maker Tesla has had a bumpy ride lately but keeps rolling on. Second-quarter deliveries more than doubled year-on-year to 201,304, Mr Valecha says. “Tesla should benefit from market share gains, the monetisation of its autopilot software and its under-appreciated energy business, which includes battery energy storage and solar power generation.”
Stock Exchange: NasdaqGS
Market cap: $659bn
Yield: N/A
One-year return: 62.19 per cent
6. Plug Power
Clean hydrogen and zero-emission fuel cell specialist Plug Power is a popular way to play the growing hydrogen economy, Mr Valecha says. “It will get a further boost from the $1 trillion infrastructure bill, which will pour billions into the hydrogen industry.”
Stock Exchange: NasdaqCM
Market cap: $14.86bn
Yield: N/A
One-year return: 101 per cent
7. ChargePoint Holdings
ChargePoint operates one of the world’s largest network of electric vehicle (EV) charging stations, covering both North America and Europe, and growth prospects look promising. It has a huge opportunity, Mr Valecha says. “Over the next decade, the US needs to install 380 charging ports on average every single day. Currently, it manages around 30.”
Stock Exchange: NYSE
Market cap: $7bn
Yield: N/A
One-year return: 114 per cent
8. EnerSys
EnerSys supplies batteries, chargers and accessories for the motor, aerospace and defence industries. Its advanced energy systems and storage systems power everything from satellites to submarines, forklifts to 5G networks. It has “strong market reach and solid financials”, Mr Valecha says. “Climate change, government enticements and electric vehicle growth should drive the battery market forward.”
Stock Exchange: NYSE
Market cap: $3.78bn
Yield: 0.79 per cent
One-year return: 24.97 per cent
9. Nio
Chinese automaker Nio is sometimes described as the Chinese Tesla. It designs and jointly manufactures smart, connected premium electric vehicles, and is pioneering autonomous driving and artificial intelligence. Nio recently posted a 127 per cent rise in annual revenue to $1.31bn, Mr Valecha says.
Stock Exchange: NYSE
Market cap: $62.43bn
Yield: N/A
One-year return: 170 per cent
10. TPI Composites
TPI Composites manufactures composite blades for the global wind energy market and has invested millions of dollars on its manufacturing capacity, Mr Valecha says. “Revenue has grown almost 200 per cent since 2016 to almost $2 billion.”
Stock Exchange: NasdaqGM
Market cap: $1.39bn
Yield: N/A
One-year return: 18.22 per cent
ETFs
1. iShares Global Clean Energy ETF
This clean energy ETF is one of the biggest of all, with more than $6bn under management. Top holdings include Danish turbine manufacturer Vestas Wind Systems and California-based solar firm Enphase Energy.
Assets under management: $6.05bn
Yield: 0.74 per cent
One-year return: 36.16 per cent
2. First Trust Nasdaq Clean Edge Green Energy Index Fund
This ETF has a concentrated portfolio of 50 global stocks, including Tesla, Enphase, Albemarle, Nio and First Solar, Mr Valecha says. It should benefit from both electric vehicle growth and wider applications for battery technology.
Assets under management: $2.81bn
Yield: 0.14 per cent
One-year return: 57.23 per cent
3. ALPS Clean Energy ETF
This ETF, from specialist manager SS&C ALPS, takes diversification seriously, Mr Valecha says. “It invests about 26 per cent in solar stocks, 20 per cent in smart grid holdings and another 20 per cent in wind-related energy stocks.”
Assets under management: $1.01bn
Yield: 0.53 per cent
One-year return: 31.14 per cent
4. Invesco WilderHill Clean Energy ETF
The ETF has about 70 holdings and boasts healthy long-term performance, with a total return of 350 per cent in the past five years. “This is more than triple the S&P 500 and double many other funds on this list,” Mr Valecha says.
Assets under management: $2.28bn
Yield: 0.74 per cent
One-year return: 41.97 per cent
5. SPDR S&P 500 Fossil Fuel Reserves Free ETF
This ETF could act as a stepping stone for investors wanting to green their portfolio without making a total leap into clean energy, Mr Valecha says. “As the name implies, it invests in the same stocks normally found in S&P 500 index funds, but cuts out any company related to fossil fuels.”
Assets under management: $1.15bn
Yield: 1.14 per cent
One-year return: 30.54 per cent
6. iShares Global Green Bond ETF
Green bonds are lower risk than clean energy equity funds and pay a fixed income while funding the green energy transition, Mr Valecha says. This ETF tracks a weighted index of investment-grade government and corporate bonds linked to environmentally beneficial projects, as identified by MSCI.
7. First Trust Global Wind Energy ETF
This global renewable energy ETF seeks to deliver returns in line with the ISE Clean Edge Global Wind EnergyTM Index. It is roughly 60 per cent invested in pure-play wind energy firms, with the remainder targeting those in related activities.
8. Invesco Solar ETF
The ETF invests in global solar power companies by tracking the MAC Global Solar Energy Index. Top holdings include SolarEdge Technologies, First Solar and SunPower.
9. SPDR S&P Kensho Clean Power ETF
This ETF, from State Street Global Advisers, tracks innovative US-listed clean power companies, including solar, wind, geothermal and hydroelectric power.
10. Invesco Global Clean Energy ETF
The ETF invests in global large companies involved in clean energy and conservation.
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