Among the myriad issues commanding global headlines these days, decarbonization and energy security are getting ample attention, and rightfully so.
From the perspectives of both investing and policy, decarbonization and energy security shouldn’t be treated as mutually exclusive issues. Some exchange traded funds, including the Goldman Sachs Bloomberg Clean Energy Equity ETF (GCLN), tap into that theme.
GCLN, which tracks the Bloomberg GS Global Clean Energy Index, debuted in February and positions investors to capitalize on corporate and government decarbonization efforts as well as increasing adoption of renewable energy. Moreover, GCLN has the diverse lineup necessary to capitalize on emerging trends.
“While we see the move towards a sustainable and zero emission world as cost effective without government intervention in many parts of the world, we’re seeing governments seeking to turbocharge the energy transition by putting in place a carrot and stick approach to spur that demand,” noted Cowen analyst Jeff Osborne.
Regarding energy security, geopolitical conflict often reminds investors and governments that relying on other countries for energy needs can be a dicey proposition. Russia’s ongoing war against Ukraine is a recent reminder of that, but this time could be different, and that could have a long-term positive impact on GCLN.
Russia is one of the world’s largest oil producers and a top exporter of natural gas to many European nations. Its war against Ukraine is one of the reasons that prices of those commodities are soaring this year, prompting many Western nations to realize that energy security is national security and that renewable energy needs to be part of that conversation.
As more countries are motivated to reduce dependence on potentially volatile sources of foreign fossil fuels, clean energy concepts could take center stage.
“We see Western Europe seeking to accelerate the energy transition towards solar, wind, hydrogen, and a bunch of other technologies. The recently announced aim of Repower EU plan identifies a multitude of different technologies that can help transition Western Europe off its addiction to Russian natural gas,” added Osborne.
GCLN allocates over 44% of its roster to industrial and technology stocks, and its largest sector exposure is utilities, making it a relevant play on some vital decarbonization and renewable energy concepts that investors need to consider.
“Really it’s three things that all start with the letter D, so it’s the 3 Ds. Decentralization, decarbonization and digitization. In essence, the grid needs technology to handle intermittent power generation and big spiky loads that can pop up with this electrification of mobility that’s going on,” concluded Osborne.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
