Investor interest in renewable energy seems to be growing every year. But there’s not actually that many options on the ASX to get exposure. This article is about two options.
The world is slowly and steadily shifting towards renewable energy. The US in-particular could be a place of strong investment in renewable energy over the coming years. With that in mind, these two options on the ASX could fit the bill:
Betashares Climate Change Innovation ETF (ASX: ERTH)
This exchange-traded fund (ETF) owns up to 100 (currently 90) businesses that are at the forefront of trying to solve today’s climate and environmental challenges.
To qualify for the index that this ETF tracks, at least half of the business must be generating ‘green revenue’ that are involved in reducing or avoiding CO2 emissions from green energy, green transportation, water and waste improvements, decarbonisation enabling solutions or sustainable products.
There’s a maximum weighting of 4% per position, so no holding will ever become too big in the portfolio.
I’m sure you know about some of the largest holdings in the ETF such as Zoom Video Communications, Tesla and Docusign.
I’ll just tell you about the two largest holdings – Infineon Technologies and Trane Technologies.
Infineon is a semiconductor business, it says that its semiconductors enable efficient energy management, smart mobility, as well as secure, seamless communications in an increasingly connected world. Its products are used in making cars, trains, industrial plants, data centres, consumer electronics and household appliances as energy efficient as possible.
Trane Technologies provides climate control solutions for buildings, homes, and transportation (think: air conditioners furnaces, heat pumps, refrigeration etc.). It also offers energy and facility management, installation and performance contracting, repair and maintenance, and rental services. The company is aiming to reduce its customers’ carbon footprint by one billion metrics of carbon emissions with clean technologies, advancing system level energy-efficiency, reducing global food loss and transitioning to next-generation refrigerants.
The ETF was only formed last month in March 2021, but the index that it tracks has been performing very well – returning an average of 36.6% per year over the last three years. Past performance shouldn’t be used as an expectation about how future returns will go, but it shows the underlying companies are doing well.
It does come with annual management fees of 0.65% per annum, so that’s something to be aware of. But that’s not too high for what it does.
If you’re looking for a global way to get exposure to green initiatives, this could be one of the best ways to do it on the ASX.
Mercury NZ Ltd (ASX: MCY)
However, if you’re looking for an individual ASX company that’s involved in green energy, then this is one of the best options.
It’s an electricity generation and retail business – it’s kind of like AGL Energy Ltd (ASX: AGL). But there’s a big difference. All of Mercury’s energy generation is renewable. It owns nine hydroelectric stations and another five geothermal plants. It soon will have wind and it also says that with its customers it generates solar.
The New Zealand Government actually owns 51% of this business.
Mercury is also in the process of buying Tilt Renewables Ltd’s (ASX: TLT) New Zealand business, which owns a number of wind farms.
