ACES: Investing In EVs, Solar, And Wind – However No Royal Flush

The portfolio of the ALPS Clean Energy ETF (NYSEARCA:ACES) is most closely weighted to the EV, photo voltaic, and wind sub-sectors inside the clean-green renewable power sector. The fund has a 0.55% expense price, which is comparatively excessive. Today, I’ll check out the top-10 holdings within the ACES ETF and examine its efficiency with different main alternatives and choices for clean-energy minded traders.

Investment Thesis

Global EV gross sales continued to increase final yr, rising 55% yoy to 13% of the worldwide new car market:

Meantime this yr – and just like the earlier two-years – renewable power sources like photo voltaic, wind, and battery backup will proceed to be the overwhelming majority (82%) of recent incremental electrical energy era capability within the U.S. whereas greater than half of that new U.S. electrical power-gen capability will likely be photo voltaic (a whopping 29.1 GW):

That being the case, the funding progress thesis supporting the EV, photo voltaic, wind and clean-green power sector as an entire is each clear and compelling. With that as background, let’s have a look to see how the ACES ETF has positioned traders to profit from these basic drivers going ahead.

Top-10 Holdings

The top-10 holdings within the ALPS Clean Energy ETF are proven beneath and have been taken straight from the ACES ETF webpage the place traders can discover extra detailed data on the fund:

The top-10 holdings equate to what I think about to be a reasonably diversified 53% of the portfolio. Overall, the portfolio is most extremely allotted towards the EV, Solar, and Wind sub-sectors:

The #1 holding with a 7.8% weight is First Solar (FSLR). FSLR shares are up almost 160% over the previous yr as income is predicted to develop to $3.49 billion in FY2023 (+33% yoy) whereas earnings are anticipated to swing from losses to income of an estimated $0.86/share in Q1 FY23. First Solar is a world supplier of photovoltaic (“PV”) photo voltaic power methods and options and in addition engages in manufacturing photo voltaic PV know-how for skinny movie semiconductor modules.

Tesla (TSLA) is the #3 holding with a 6.0% weight. Tesla inventory has been on an arcade experience over the previous yr as CEO Elon Musk injected Twitter associated drama onto Tesla shareholders as he bought a number of massive blocks of Tesla inventory to prop-up his Twitter acquisition. That over-shadowed what in any other case was one other sturdy yr of progress for TSLA – promoting 1.31 million EVs for a 13% share of the worldwide plug-in market. However, Tesla’s market share dropped 1% yoy as BYD (OTCPK:BYDDY) picked up 9 proportion factors of world market share and is now the #1 plug-in EV producer with an 18.4% market share. Note that BYD just isn’t a holding within the ACES ETF as a result of it solely invests in U.S. and Canadian firms. That’s a disgrace, as a result of BYD has outperformed TSLA by almost 45% over the previous yr:

Renewables targeted NextEra Energy Partners (NEP) is the #5 holding with a 5.0% weight. NEP is down 22% over the previous yr, yields 5.2%, and trades with an estimated ahead P/E = 25.4x. The LP has a 5-year dividend CAGR of ~14.9%.

Leading lithium producer Albermarle Corp (ALB) is the #6 holding with a 4.9% weight. ALB is seeing sturdy demand from EV battery makers as income in FY23 is predicted to develop to $11.43 billion, up from $7.32 billion final yr (+56% yoy). ALB shares are +17.8% over the previous yr.

Plug Power (PLUG) is the #7 holding with a 4.8% weight. PLUG is investing to develop its enterprise in clear hydrogen and zero-emissions gas cell options for provide chain and logistics functions, on-road EVs, and the stationary energy market. PLUG is engaged on building-out an end-to-end inexperienced hydrogen ecosystem – together with meting out infrastructure. The firm is in a fast-growth mode: income is predicted to rise 91% in FY23 to $1.34 billion:

Still, PLUG shares are down ~50% over the previous yr, possible as a result of the corporate remains to be not turning a revenue.

Rounding out the top-10 checklist is Enphase Energy (ENPH) with a 4.0% weight. ENPH focuses on semiconductor-based microinverters, which convert PV power on the particular person photo voltaic module degree to usable power ranges. ENPH additionally presents proprietary networking & software program applied sciences for power monitoring, management, optimization, and effectivity. ENPH shares are +15% over the previous yr, and 4,288% over the previous 5-years.

Performance

The graphic beneath compares the 3-year whole returns of the ACES ETF with these of a few of its friends, together with the First Trust Clean/Green Energy ETF (QCLN), the iShares Global Clean Energy ETF (ICLN), and Invesco WilderHill Clean Energy ETF (PBW), and the First Trust Nasdaq Clean Edge Grid ETF (GRID):

As might be seen by the graphic, the ACES ETF is way from being a frontrunner within the area. The QCLN ETF, which truly has a 3 foundation factors increased expense price (0.58%) as in comparison with the ACES ETF, has greater than doubled the returns of the ACES fund over the previous 3-years, as has the GRID ETF. The two ETFs maintain lots of the identical firms within the portfolio, so aside from a better focus with the top-holdings, all I can deduce is that the QCLN ETF has higher fund managers as in comparison with the ACES fund.

Risks

The clean-green power targeted firms held within the ACES ETF are usually not resistant to the affect of the worldwide financial atmosphere – together with increased than regular inflation, a rising rate of interest atmosphere, and a usually slowing international economic system – partly or maybe primarily attributable to Russia’s invasion of Ukraine which broke the worldwide meals and power provide chains. That helped goose inflation simply because the planet was climbing out of the worldwide pandemic and has led to the fast and steep rise in rates of interest.

Higher rates of interest may pose a headwind to a number of the clear power firms that also require funding (fairness or debt) for progress. Some of those firms are nonetheless not constantly worthwhile and, consequently, may fall out of favor comparatively rapidly.

Summary & Conclusion

The ACES ETF is working in a high-growth sector however doesn’t look like delivering for its traders. That being the case, I price ACES at maintain as a result of I do like its top-10 holdings. However, QCLN continues to be my favourite ETF within the sector, and I price it a BUY.

I’ll finish with a 5-year whole returns comparability of the ACES and QCLN clear power ETFs as in comparison with the broad market indexes represented by the Vanguard S&P500 ETF (VOO) and the Nasdaq-100 (QQQ):

As you’ll be able to see, and regardless of the 2022 bear-market within the know-how sector, the QCLN ETF has blown away the S&P500 and Nasdaq-100 over the previous 5-years, as has the ACES ETF as effectively.

Editor’s Note: This article discusses a number of securities that don’t commerce on a serious U.S. alternate. Please pay attention to the dangers related to these shares.