Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.
Today, I shall introduce a sector-specific ETF and that is the iShares Global Clean Energy ETF (ticker: ICLN).
The Green Revolution
I had identified alternative energy as one of the sectors to go into back in Dec 2017 (here) after analysing the then-trends and formulating a series of educated guesses, or “guesstimates” as I liked to call them. Going green is nothing new as some organisations and activists around the world had been promulgating it for decades, but this movement had gained some serious momentum in the recent years.
During my “next big thing” analysis, there were some catalysts that prompted me to look in this direction; one of which was the increased awareness of climate change amongst the global population; another was the trend of electric vehicles that is going to be in the spotlight for the next decade; and yet another was the push for carbon-neutrality in some countries and organisations. Then of course later on, we had the famous “How dare you” speech by Greta Thunberg in Sep 2019.
There are a number of green ETFs available (not locally listed, though. You need to look for them in the U.S. markets), ranging from geographically focused (e.g. KGRN which is on China), energy type focused (e.g. TAN which is on solar power) to carbon focused (e.g. ECLN which tracks companies that seek or having a positive carbon impact). I had selected ICLN namely for three reasons:
- It has a broad focus that includes manufacturers and providers related to alternative energy; covers different types of energy sources (wind, solar, fuel cells, etc.); and spanning across different countries (China, New Zealand, United States, etc.).
- It has one of the lowest expense ratios (0.46%).
- Its asset-under-management (AUM) is about USD 1.5 billion, which is so far the largest alternative energy ETF to date. An ETF with a large AUM tends to have higher trading volume and thus higher liquidity, which makes it easier to transact. An ETF with a high AUM also has economies of scale to reduce expenses, thus keeping the expense ratio low.
The Way Forward
The impetus to go green has never been this accelerated recently as compared to past instances. The awareness of climate change is quite widespread, probably thanks to social media platforms (read: technology sector) that enable messages to be shared far and wide. Some traditional oil companies such as Shell are moving into low-carbon or green energy, signaling a potential change of paradigm amongst the oil players.
Though the ICLN investment had almost hit the one-bagger mark (USD 19.08 as at 2 Oct 2020), it made up only about 1% of our portfolio. There is still some headway in the green/alternative energy sector, so I might be expanding this toehold by averaging up on this ETF in the near future.
Bought ICLN at:
USD 9.58, January 2018