With the Green New Deal recently proposed by U.S. Rep. Alexandria Ocasio-Cortez, interest in renewable energies could grow, along with pressure from supporters’ goal of 100 percent renewable and alternative energy consumption by 2030. Investors…
With the Green New Deal recently proposed by U.S. Rep. Alexandria Ocasio-Cortez, interest in renewable energies could grow, along with pressure from supporters’ goal of 100 percent renewable and alternative energy consumption by 2030. Investors may be able to capitalize on this.
“Whether Green New Deal proponents get everything they want or only some of it, as an investor, I’m anticipating changes, and therefore opportunities in the market,” says Kenneth Ameduri, chief editor and co-founder of CrushTheStreet.com. “The impact on our portfolios could be profound as traditional energy investments and the utilities sector are likely to take a hit if the resolution gains traction.”
However, renewable energy opportunities present challenges because there are no “pure play opportunities in blue-chip-like companies,” says Blaine Townsend, director of sustainable, responsible and impact investing at Bailard, a wealth management firm in the San Francisco Bay area. This makes the proposition risky and somewhat limited, especially since historically, such publicly traded small- and micro-cap individual stocks have proved “savagely volatile,” Townsend adds.
To ensure your investments in renewable and alternative energies both meet your personal goals and make money, experts offer the following considerations:
— Policy and energy affect renewables.
— Diversify with ETFs and mutual funds.
— Choose debt investments.
— Build a fossil fuels-free portfolio.
Policy and Energy Affect Renewables
Unlike traditional oil and gas, government subsidies and large scale support for the renewable industry ebb and flow, Townsend says, and this means so does the investment. Keep this in mind as an element that is largely out of the investor’s control.
“Subsidies for renewables have yet to be permanently written into federal tax codes or consistently embraced politically. That contributes to the overall volatility of the sector year over year,” Townsend says. “Renewables are also affected by the price of oil in the sense that when the price of oil is high … the fundamentals of the renewable industry are more attractive.”
Depending on what aspects of the Green New Deal become policy, investors can expect the volatility to continue — it just may include a bit more on the upside, Townsend says.
Diversify With ETFs and Mutual Funds
These options provided a potentially less volatile route than trying to “pick a winner amongst individual companies,” though historically renewable and alternative energy focused exchange-traded funds and mutual funds are more volatile than the broad market, Townsend says. Because of this, avoid making them too large a piece of your portfolio.
Check out ETFs like Invesco Solar (ticker: TAN) and First Trust Global Wind Energy ( FAN) relative to traditional producers like First Trust Natural Gas ( FCG), VanEck Vectors Oil Services ( OIH) and SPDR S&P Oil and Gas Equipment and Services ( XES) for overall mid-cap energy service companies, says Steven Jon Kaplan, CEO at True Contrarian Investments.
“During the first decade of this century, traditional producers tended to outperform clean or green energy, but during the past few years the alternative energy shares have notably gained more in percentage terms,” Kaplan says. “It is not clear whether this is due to increased media coverage or concern over the environment or simply a wish to be trendy along with everyone else, but the relative behavior of these sectors has definitely shifted.”
The downside of this phenomenon is the lack of worthwhile bargains in clean energy, he adds: “With TAN, FAN, and the other clean-energy funds currently trading not far from their recent highs, potential upside is probably limited.”
FAN is trading at about $13.03, from $13.08 a year ago and $12.37 five years ago, while TAN is trading at about $24.87, up from $24.65 a year ago and $49.92 five years ago.
Choose Debt Investments
“There have always been private investment opportunities in renewables, but most of these were typically out of reach or not appropriate for the average investor because of the high minimum investment required, the level of accreditation required to participate, and the risk,” Townsend says.
Instead, investors can buy green bonds used by federally qualified organizations to develop brownfield sites, and securities such companies use to fund their operations.
“When coupled with promissory notes and nonrated debt investments from organizations focused on promoting the industry, investors may more easily leverage their risk budget to directly invest in green infrastructure or renewable energy,” Townsend says.
If the volatility and nuance of investing directly in renewable energy investments is too overwhelming, simply avoid investments in their opposite, Townsend says, whose firm has more than $700 million invested in fossil fuel-free strategies.
“Lightening up on the traditional energy and utilities sectors and moving toward companies like clean power generation asset company TerraForm Power ( TERP), biodiesel-focused company Renewable Energy Group ( REGI), and Siemens Gamesa Renewable Energy (GCTAF) — the world’s largest producer of wind turbines — could be a smart allocation strategy going forward,” Ameduri says.