ALPS Clean Energy ETF was awarded a sustainability rating of 1.5. Pros: The funds’ constituents are all pure-play companies, which guarantees a degree of ‘clean’ investing. The ETF also spreads across multiple industry sectors (from tech to renewables), which reduces risk and volatility for investors and is perfect to tackle the multi-sectoral nature of the energy transition. Cons: the top 10 holdings are cumulatively placed in the ‘medium’ risk ESG category, which casts doubts on their ability to mitigate risk and this may discourage investment. Overall, the fund’s diversified portfolio makes it good for first-time investors, curbing the risk in such a volatile sector as clean energy. However, there is reason to doubt the credibility of some of the top holdings.
ALPS clean energy fund (ACES) holds assets totaling 874.8 million USD, distributed over 44 holdings, as of February 2022. Such a small number is justified by ALPS on the basis that constituents are narrowed down to include “only companies which are very committed to clean energy”. On the surface, the top-10 holding companies (Northland power Inc., Brookfield Renewable Partners LP, Tesla, NextEra Energy Partners LP, First Solar Inc., Hanon Armstrong Sustainable Infrastructure Capital Inc., Plug Power Inc, Enphase Energy Inc., Ormat Technologies Inc., Sunrun Inc) indeed have good records in energy management technology, renewables and manufacturing efficiency. It is commendable that the ETF operates only with pure-play companies, which guarantees a high proportion of ‘clean’ revenue. Cumulatively, however, companies are placed in an ESG risk category of ‘Medium’, which is a cause for concern. It is especially problematic that Northland Power, the top holder with a rate of 6.46% has an ESG rating of 35.3, putting it in the ‘High Risk’ category. A positive aspect of the ETF is that it spreads across multiple industry sectors (From Solar to Geothermal energy, to Electric Vehicles), which both reduces risk and volatility through portfolio diversification, thus encouraging investment in Clean Energy, and addresses the need for multi-sectoral transformation in the energy transition. Leveraging on renewables and technology (the latter representing 14% of Investment sector allocation), the ETF seems sustainably designed to address what are the two pillars of UN and EU green transition strategies.
The ACES Fund operates corresponding to the performance of the CIBC Atlas Clean Energy index. The Fund focusses on U.S and Canadian-based companies. While this reduces investor risks related to money exchange rates, intra-country policy changes and thus positively encourages an investment in Clean Energy, it also means that investment operates within a ‘local’ mindset, limiting diversification of the investment portfolio. This might discourage holding companies in using earnings to fund green projects overseas, or in partnership with international companies. Seen as sustainable finance requires a global shift to a green economy, this is a downside to the fund.
ALPs’ ETF portfolio is managed by Andy Hicks, who is the vice-president of Alps advisors and has been in the firm since 2015. He has 20 years of expertise in portfolio managing. Alps has good experience with Thematic investment and ETFs since 1995 and currently actively manages 7 funds across multiple sectors. The ACES Fund partners with CIBC, a reputable banking institution. As an open architecture boutique investment manager, Alps Advisors doesn’t easily diffuse information on its corporate governance or social responsibility- a potential cause for concern. However, the ACES Fund has an MSCI ESG Rating of AAA, and a score of 9.08/10, which shows resiliency to long-term risks. This is good news for the livability of the ETF, and the extent to which it encourages investment in clean energy.