By Paul MacDonald, CFA
Chief Investment Officer
Harvest Portfolios Group Inc. has launched Canada’s first fully diversified global clean energy ETF to capture the growing investment potential of renewable sources of power.
The transition is just beginning and will accelerate over the next few decades, Paul MacDonald, Chief Investment Officer at Harvest told advisors during a recent webinar. He added that falling costs to generate power from wind, solar and hydro, plus a global political will to tackle climate change are twin boosts for the sector.
“There’s a political will and there’s societal will,” Mr. MacDonald said. “But there is also an investment will from institutions and pension plans, who are directing their capital into renewable energy.”
He said the Harvest Clean Energy ETF (TSX:HCLN) is the first Canadian clean energy ETF. It holds 40 of the largest global clean energy companies by market capitalization. The ETF is passively managed and equally weighted. It is rebalanced semi-annually and has a 40 basis-point management fee.
While clean energy covers a wide variety of sectors, Harvest is focused on power producers and related equipment, such as wind turbines and solar panels. This includes hydro, solar, wind power and to a lesser degree hydrogen fuel cells.
Mr. MacDonald said the increasing use of fossil fuels over the last century has increased the concentration of carbon dioxide in the atmosphere leading to climate change.
“This is a global phenomenon and so we have a globally concentrated desire to reduce our emissions. That flows into why we look at the investment in renewable energy from a global perspective.”
He said there’s been an 80% increase in renewable energy investment from 2009 to 2019 with Europe taking the lead and enjoying some of the most mature companies in the sector. The Harvest ETF includes many of these industry leaders.
The regional breakdowns of the Harvest Clean Energy ETF’s holdings are approximately: Europe 33%; U.S. 28%, Canada 12%, New Zealand 10%, China 10%, Hong Kong 5% and Israel 2.5%. Approximately 55% of the holdings are in renewable power with the other 45% in equipment and services.
Mr. MacDonald said that while the news has focused a lot on U.S. President Joe Biden’s initiatives, the political will driving the clean energy spectrum is widespread. Europe has its own Green Deal and China wants a third of its power to be generated by renewables by 2030.
“We think renewable growth is going to really take hold over the coming decade.”
Mr. MacDonald said fossil fuels won’t disappear, but their dominance will be replaced by renewable power sources as the cost of generating wind and solar as examples drop significantly.
There are a number of names in the Harvest Clean Energy ETF that Canadians will recognize including Northland Power Corp., Brookfield Renewable Partners L.P., Boralex Inc., and Ballard Power Systems Inc.
One European company in the ETF is Orsted National Power Co., the largest energy company in Denmark. It has a market capitalization of US $90 billion and is one of the world’s largest producers of power using wind energy.
“They are one of the world’s leaders at the front end of wind power generating,” Mr. MacDonald said with expansion plans in Asia.
Another is Siemens Gamesa Renewable Energy, S.A., based in Spain which is partly owned by Siemens AG. It has a market capitalization of US $30 billion and is the fourth largest producer of wind turbines in the world.
Another Danish holding is Vestas Wind Systems A/S, the global leader in design, manufacture and installation of wind turbines.
The ETF has several solar energy holdings including First Solar Inc. and Enphase Energy Inc. First Solar designs and manufacturers solar modules while Enphase makes the micro converters that convert solar energy into electricity. Other solar companies include U.S. based Sunrun Inc. that installs rooftop solar panels on residences and businesses and Scatec ASA, based in Norway is a pure play solar power producer. They build solar farms and have been in business for 30 years. Verbund AG with a US$33 billion market cap supplies about 40% of Austria’s power of which 90% is generated from hydro.
“What we want to show is the spectrum of renewable power companies and equipment on a global scale. It’s a globally concentrated concerted effort that is occurring at a very rapid pace.”
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