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Clean Energy Living in a Manchin of Opportunity

  • Last week, the ALPS Clean Energy ETF rallied strongly and surged 14.43% on strong clean energy earnings and Senator Joe Manchin finally supporting $369 billion in clean energy subsidies to be earmarked in the US Inflation Reduction Bill. In a week that saw growth stocks rebound amid a slightly less hawkish Federal Reserve, which signaled possibly a less aggressive approach to future rate hikes, ACES outperformed broader growth indices as well as its clean energy peers on earnings strength from three of its overweight solar holdings.

  • The news of US fiscal stimulus possibly being injected into clean energy companies supercharged all seven of ACES’ US and Canadian-focused clean energy segments last week, but none more than ACES’ Solar segment (27.57% of ACES*), which gained an astounding 32.28%. Solar stocks also had the added catalyst of blowout earnings last week from microinverter name, Enphase Energy Inc. (ENPH, 6.52% weight*), which jumped over 34% and reported record revenue in Q2 on a 69% rise in European sales. Also climbing on strong Q2 earnings and bookings guidance last week were First Solar Inc. (FSLR, 5.96% weight*) advancing +36.62%, and Sunnova Energy Intl. (NOVA, 2.20% weight*) gaining +36.73%. While component supply shortages are still an issue, the industry is now mostly able to satisfy record demand.

  • ACES’ other top performing segments, buoyed by the news of the US Inflation Reduction Bill, included Fuel Cell/Hydrogen (7.26% of ACES*), and Energy Management & Storage (4.11% of ACES*), rising +19.27% and +18.32%, respectively. Additional notable gainers in ACES included biofuel producer, Aemetis Inc. (AMTX, 0.19% weight*), rising over 46% last week, renewable infrastructure developer, Infrastructure and Energy Alternatives (IEA, 0.35% weight*), gaining +35.38%, and wind blade producer, TPI Composites Inc. (TPIC, 0.51% weight*) returning +31.55% last week after the Biden Administration is set to push an offshore wind development program.

“With commodity prices falling and economic data softening, inflation is projected—based on both breakevens and economist forecasts—to steadily decline over the next 24 months. We believe this will lead the Fed to pivot toward more dovish policy as we move toward the latter part of the year, supporting a continuation of the market’s current rally and growth stock leadership.”

– Patrick Palfrey, Chief US Strategist at Credit Suisse, July 28th 2022

Tighter Financial Conditions Won’t Stop the Inertia around Clean Energy Policy Support
  • Despite tightening financial conditions across the globe, clean energy stocks set themselves apart from nearly all other market segments due to a multi-trillion dollar global effort to transition away from fossil fuels over the next few decades, both in the private and public sectors. Energy supply has been immensely constrained across the globe due to Russia’s Invasion of Ukraine, and higher fossil fuel prices have driven the US, Europe, China, Canada, etc. to expedite the build-out of clean energy infrastructure to reach decarbonization goals by 2050.

  • The proposed US Inflation Reduction Bill would provide ~$369 billion in policy support across the end-to-end clean energy supply chain. The preliminary details around the climate portion of the bill would support all seven clean energy segments in ACES (Solar, Fuel Cell/Hydrogen, Energy Management & Storage, Bioenergy, Wind, EVs, Hydro/Geothermal). Consumer tax credits for EVs and household renewable energy installations/appliances, tax credits for EV battery and materials suppliers, tax credits for zero carbon power projects and green hydrogen production, as well as extended tax credits for biodiesel are some of the major highlights of the potential bill. Although the bill still faces hurdles in Congress, clean energy stocks have been weak, partly due to weak US policy support, and this sentiment shift should bode well for valuation expansion across the industry as future renewable energy growth prospects may buck any recessionary trends in the economy.

Public Clean Energy Policy Support ($) Since the Pandemic Began

  • The United States has led G20 countries in clean energy policy support since 2020, committing nearly 3x the amount of the runner-up (Italy, ~49 billion) and exclusive of the $369 billion proposed above.

  • Per Bloomberg Intelligence, US solar-exposed firms expect to boost revenue by 50% in 2022, with additional policy support in the US sustaining growth above 25% in 2023.

Performance Summary
  1 Week YTD 1 Y 3 Y
ALPS Clean Energy ETF (ACES) 14.43% -6.81% -16.45% 101.78%
CIBC Atlas Clean Energy Index - TR 14.46% -6.75% -16.20% 103.74%
S&P 1000 Index - TR 4.80% -10.84% -6.05% 33.74%

Source: Bloomberg L.P., as of 07/29/2022

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or click here. Performance includes reinvested distributions and capital gains.

For standardized performance please click here.

* Weight in ACES as of 07/29/2022

Top 10 Holdings
Enphase Energy Inc 6.52%   Rivian Automotive Inc 5.12%
First Solar Inc 5.96%   NextEra Energy Partners LP 4.99%
Tesla Inc 5.71%   Northland Power Inc 4.82%
Sunrun Inc 5.50%   Brookfield Renewable Partners LP 4.74%
Plug Power Inc 5.37%   Lucid Group Inc 4.40%

As of 07/29/2022, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Shares are not individually redeemable. Investors buy and sell shares on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 5,000, 25,000 or 50,000 shares.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.

Obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants and general economic conditions can significantly affect companies in the clean energy sector. In addition, intense competition and legislation resulting in more strict government regulations and enforcement policies and specific expenditures for cleanup efforts can significantly affect this sector. Risks associated with hazardous materials, fluctuations in energy prices and supply and demand of alternative energy fuels, energy conservation, the success of exploration projects and tax and other government regulations can significantly affect companies in the clean energy sector. Also, supply and demand for specific products or services, the supply and demand for oil and gas, the price of oil and gas, production spending, government regulation, world events and economic conditions may affect this sector. Currently, certain valuation methods used to value companies involved in the clean energy sector, particularly those companies that have not yet traded publicly, have not been in widespread use for a significant period of time. As a result, the use of these valuation methods may serve to increase further the volatility of certain clean energy company share prices.

The Fund seeks to track the underlying index, which itself may have concentration in certain regions, economies, countries, markets, industries or sectors. Underperformance or increased risk in such concentrated areas may result in underperformance or increased risk in the Fund.

The Fund may be subject to risks relating to its investment in Canadian securities. The Canadian economy may be significantly affected by the US economy, given that the United States is Canada’s largest trading partner and foreign investor. Any negative changes in commodity markets could have a great impact on the Canadian economy. Because the Fund will invest in securities denominated in foreign currencies and the income received by the Fund will generally be in foreign currency, changes in currency exchange rates may negatively impact the Fund’s return.

Micro-cap stocks involve substantially greater risks of loss and price fluctuations because their earnings and revenues tend to be less predictable (and some companies may be experiencing significant losses), and their share prices tend to be more volatile. The shares of micro-cap companies tend to trade less frequently than those of larger, more established companies, which can adversely affect the pricing of these securities and the future ability to sell these securities.

Smaller and mid-size companies often have a more limited track record, narrower markets, less liquidity, more limited managerial and financial resources and a less diversified product offering than larger, more established companies. As a result, their performance can be more volatile, which may increase the volatility of the Fund’s portfolio.

The large capitalization companies in which the Fund invests may underperform other segments of the equity market or the equity market as a whole.

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

CIBC Atlas Clean Energy Index (NACEX): an adjusted market cap weighted index designed to provide exposure to a diverse set of US or Canadian based companies involved in the clean energy sector including renewables and clean technology. The clean energy sector is comprised of companies that provide the products and services which enable the evolution of a more sustainable energy sector.

S&P 1000 Index: combines the S&P MidCap 400 and the S&P SmallCap 600 to form an investable benchmark for the mid- to small-cap segment of the US equity market.

One may not invest directly in an index.

ALPS Advisors, Inc. is affiliated with ALPS Portfolio Solutions Distributor, Inc.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

CLN000374 11/01/2022

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