ACES - ACES: Not The Time And Disappointing Performance

2023-10-25 12:36:59 ET

Summary

• The performance of the ALPS Clean Energy ETF has been subpar compared to its peers in the clean energy sector.
• The clean energy sector is highly susceptible to shifts in technology, market demand, and government regulations.
• Despite the long-term potential of the clean energy sector, it may not be the best time to invest in ACES due to global momentum and the risk of a global slowdown.

A strong renewable energy industry is good for our environment and our economy. - Roy Cooper.

The global shift towards a more sustainable and renewable energy sector was supposed to present significant long-term returns. After all, the green energy transition is unstoppable and every major government worldwide has been pushing for it. The reality, unfortunately when it comes to stocks getting exposure to the space, has been quite the opposite of the narrative. And the performance of the ALPS Clean Energy ETF (ACES), a fund designed to provide exposure to U.S. and Canadian companies involved in the clean energy sector, proves it.

Overview

ACES is an Exchange Traded Fund that seeks to correspond (before fees and expenses) generally to the performance of the CIBC Atlas Clean Energy Index (NACEX). This index is designed to offer exposure to a diverse set of U.S. and Canadian companies active in the clean energy sector, including those involved in renewables and clean technology.

The clean energy sector is comprised of companies that provide the products and services facilitating the evolution of a more sustainable energy sector. These include companies involved in solar, wind, hydropower/geothermal, bioenergy, electric vehicles, energy management and storage, and fuel cell/hydrogen technologies. ACES is primarily allocated towards companies involved in electric vehicles, solar, and wind sub-sectors within the clean-green renewable energy sector. Top holdings include:

1. Rivian Automotive, Inc. (RIVN) - An American automaker and automotive technology company that produces electric vehicles.

2. Tesla, Inc. (TSLA) - A global leader in electric vehicle manufacturing and clean energy production (currently the fund's second-largest holding at 5.68%).

3. Enphase Energy, Inc. (ENPH) - A global energy technology company that delivers smart, easy-to-use solutions that manage solar generation, storage, and communication on one intelligent platform.

4. Lucid Group, Inc. (LCID) - An American automotive company specializing in electric cars.

5. Brookfield Renewable Partners L.P. (BEP) - One of the world's largest investors in renewable power, with a portfolio consisting of hydroelectric, wind, and solar facilities (currently the fund's largest holdings at 6.13%).

Peer Comparison

When compared to its peers, the performance of the ACES ETF has been subpar. The fund has meaningfully underperformed for example the First Trust NASDAQ Clean Edge Green Energy Index Fund ETF ( QCLN ) and the iShares Global Clean Energy ETF ( ICLN ). The entire space has done poorly, but ACES has done comparatively worse for the last three years on a relative basis.

Potential Risks

Relative performance aside, the broad issue here is that the clean energy sector is highly susceptible to shifts in technology, market demand, and government regulations. Furthermore, certain clean energy technologies are still maturing, and their adoption rates could be slower than anticipated. Additionally, the fund's focus on U.S. and Canadian companies may expose it to risks associated with these specific markets. The performance of these companies may be influenced by factors such as economic conditions, market demand, and governmental policies in these regions.

Conclusion: Is ACES A Good Investment?

Despite the potential risks, the long-term outlook for the clean energy sector still can't be denied. However, given the current global momentum and the risk of a global slowdown impacting capital flows in alternative energy more broadly, it may not be the best time to invest in ACES. I think this is a fund to maybe keep on a watch list, but it would take some meaningful sentiment shifts in alternative energy, alongside a more robust global outlook, for this, in my view, to really live up to the green energy hype.

For further details see: