By Michael Kovacs
President & CEO
As the impact of climate change becomes more pronounced, clean and renewable energy companies are assuming an important place in portfolios. Investors can serve two goals: acting on social and environmental beliefs while taking part in a once-in-a-generation stock market opportunity.
Many observers see 2020 as the year of transition for clean energy investing. The energy think tank Energy Innovation noted in a recent Forbes article, that the pandemic year will go down in history as the year of clean energy’s unstoppable rise.
Solar energy costs have turned a corner and solar is now a cheaper source of power in most parts of the world than natural gas and coal, according to the International Energy Agency. (IEA) The IEA says renewables’ share of global power generation has risen from 20% in 2010 to 27% in 2019 with a target of 50% by 2030.
Harvest ETFs have launched one of Canada’s first global clean energy ETFs to capture that potential. In an interview, Harvest CEO Michael Kovacs discusses the thinking behind the Harvest Clean Energy ETF (TSX:HCLN) ), its goals and why it aligns with the Harvest strategy of conservative growth and income.
It seems that clean energy has turned a corner.
Yes, it has. The tide has turned and it was one of the best performing sectors last year. But given that the rise was from a low base – 10 years of flat to negative performance – we think the long-term potential is huge. What’s happened so far is just catch up. With long term political and societal will behind it, there is a lot more room. The Biden presidency brings the U.S. back to the Paris Climate Accord and Biden also has a broad green energy platform that will encourage the renewable energy sector.
So, catch up aside, the longer term is very promising.
How is clean energy different from ESG?
Clean energy is a component of ESG; the ‘E” or environmental part. That is utilities and power generators that use hydro, solar, wind and other renewables to generate electricity. Social and governance components are about how a company behaves and its corporate governance structure.
Our focus is on companies that are generating energy that is less polluting and better for the environment. These companies are also investment friendly because they offer cost effective alternatives.
Tell us about the Harvest Clean Energy ETF
It is a passively managed portfolio of 40 clean energy companies. This includes hydro, wind and geothermal. But it also includes companies that make components for clean energy companies.
About 55% of the ETF is in renewable power generation. The other 45% is in equipment and services, which includes components for solar and wind generating equipment as well as hydrogen, fuel cell and battery storage.
Would Canadians be familiar with the companies?
Yes. The ETF has 12% of its holdings in Canadian companies. Some of the names are Ballard Power Systems, which makes batteries. Brookfield Renewable Corp. is another. It is involved in wind, hydro and solar as is Northland Power. Boralex is another. It is a wind power generator. They have market capitalizations between US $3 billion and $8 billion, so they are very large.
The approximate regional breakdowns of the ETF’s holdings are: Europe 30%; U.S. 28%, Canada 12%, New Zealand 10% and China 10%. The ETF is rebalanced semi-annually and is currency unhedged. The management fee is 0.40% annually.
How is this ETF different?
It is the first listed Canadian clean energy ETF of its kind. There are only a few products like this in North America.
Who would be interested in this ETF?
Millennial investors looking to get into the clean energy space. Investors looking for a growth component in their portfolio. It appeals to a wide section of investors.
For more on Harvest ETFs, managed by Harvest Portfolios Group Inc., click here.