New Year, Same Catalysts for Clean EnergyFebruary 1, 2023
- The ALPS Clean Energy ETF (ACES) kicked off the New Year with a bang, rallying nearly 16% in January 2023 as clean energy stocks impressed on quarterly earnings and event-driven news. With geopolitical tensions spurring the need for global energy security and accelerating the adoption of clean energies, ACES’ focused allocation to US and Canadian pure-play companies minimizes the high leverage and transparency risk associated with Chinese and European clean energy companies, allowing it to vastly outperform the S&P Global Clean Energy Index in January.
- ACES’ Electric Vehicle (EV) segment supercharged the fund in January on the back of strong earnings and a flurry of acquisition news in the space. Luxury EV manufacturer, Lucid Group Inc. (LCID US, 5.76% weight*), rocketed over 71% in January following reports that a Saudi Public Investment Fund is looking to acquire the remaining shares in the company that it does not currently own. Lucid’s news propelled catalyst-hungry EV producers throughout the segment, with Hyliion Holdings Corp. (HYLN US, 0.41% weight*) and Workhorse Group Inc. (WKHS US, 0.30% weight*), both rising over 45% and nearly all other ACES EV names notching double-digit gains on the month. Tesla Inc. (TSLA US, 4.80% weight*) also gained over 40% last month after reporting better-than-expected profits and expected deliveries of vehicles above 1.8 million for 2023. Adding to positive EV news in January, EVgo Inc. (EVGO US, 0.41% weight*) jumped 54.14% after news broke that it had entered into a pact with Amazon (not in ACES) to enable EVs to locate and pay for its network of chargers with Amazon’s automated personal assistant, Alexa.
- Fuel Cell/Hydrogen segment names in ACES also marched higher in January, led by hydrogen fuel cell manufacturer, Ballard Power Systems, Inc. (BLDP US, 1.35% weight*). Ballard jumped over 36% last month after inking an agreement to supply fuel cell engines for Adani Enterprises Ltd. (not in ACES) in its pilot project to develop hydrogen fuel cell electric trucks. Plug Power Inc. (PLUG US, 5.81% weight*) was also a top gainer in the segment, surging 37.59% on the back of reaffirmed guidance for 2023 revenues of $1.4 billion, while also announcing a partnership through 2030 with Johnson Matthey (not in ACES) to utilize Plug’s hydrogen fuel cells and electrolyzers in its US manufacturing base.
- Within ACES’s Energy Management & Storage segment, Energy Vault Holdings, Inc. (NRGV US, 0.36% weight*) gained nearly 36% last month after the company raised 4Q revenue guidance on the top-end to $106m, compared to analyst estimates of $41.9m, with the boost driven by its strong battery storage projects and supply-chain execution, as well as product expansion in Europe. Additionally, Fluence Energy Inc. (FLNC US, 0.80% weight*), an ACES name specializing in energy storage technologies and AI-enabled platforms, rallied nearly 41% in January as positive sentiment from the company’s 3Q earnings caused analysts to raise price targets by an average of +16%.
“As the net-zero opportunity becomes clearer – BNEF’s New Energy Outlook puts the investment opportunity at $194 trillion to 2050 – countries are rightly looking for ways to capture value in the clean energy transition, from raw materials extraction and refining to technology development, manufacturing and deployment.”
– Bloomberg NEF, January 12, 2023
A Pocket Full of ACES? A Winning Hand for a Growth Allocation
- Geopolitical risks and elevated fuel costs will continue to accelerate clean energy spending and adoption into 2023 and over the next few decades, where the global opportunity to capture the estimated $194 trillion investment effort to reach Net-Zero by 20501 goals is just beginning. Public, corporate and consumer spending towards clean energy will be driven by massive tax credits and subsidies across the G20 nations, including further credits set to kick in during 2023 from the US Inflation Reduction Act (IRA) passed in 2022. Since the IRA bill passed, nearly $28 billion in new EV infrastructure investment has been announced in the US, with the announced policy support raising estimates of US grid investment alone to $801 billion by 2030. The IRA has helped to fuel M&A across the EV space as well as in the US biofuel industry, with fossil-fuel buyers flush with free-cash-flow looking to reposition their businesses toward more clean technologies and ESG attributes.
- Higher financing costs for solar, wind and hydrogen projects is a concern for 2023, but lower material costs and tax credits should flow through those supply chains in 2023 to help offset the high interest rate environment. ACES diversification within seven growing segments of clean energy has proven beneficial as some segments face near-term headwinds on rising rates. ACES’s overweight to Fuel Cell/Hydrogen and Energy Management & Storage, for example, are projected to see investment grow 64.1x and 6.1x by the end of the decade. ACES is unique in its pure-play methodology and targeted clean energy segmentation, where companies must derive the majority of revenues from clean energy activities while targeted clean energy segmentation provides a well-rounded exposure to renewable power (Solar, Wind, Fuel Cell/Hydrogen, Hydro/Geothermal) and renewable consumption (Energy Management & Storage, Electric Vehicles, Bioenergy).
- New investment in the energy transition must reach an average of $4.55 trillion for the remainder of this decade to meet BNEF’s Net-Zero Scenario, nearly three times that of the global investment in 2022, per BNEF.
* Weight in ACES as of 01/31/2023
1 Source: BNEF, as of 01/12/2023
|1 Month||YTD||1 Y||3 Y|
|ALPS Clean Energy ETF (ACES)||15.97%||15.97%||-0.17%||49.85%|
|CIBC Atlas Clean Energy Index - TR (NACEXT)||15.96%||15.96%||-0.07%||51.04%|
|S&P 1000 Index - TR (SPK)||9.30%||9.30%||1.28%||37.13%|
Source: Bloomberg L.P., as of 01/31/2023
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 visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.
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Top 10 Holdings
|Plug Power Inc||5.81%||Northland Power Inc||5.16%|
|Lucid Group Inc||5.76%||NextEra Energy Partners LP||4.95%|
|First Solar Inc||5.69%||Tesla Inc||4.80%|
|Albemarle Corp||5.34%||Sunrun Inc||4.41%|
|Brookfield Renewable Partners LP||5.21%||Livent Corp||4.01%|
As of 01/31/2023, 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.
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