US-based EQM Indexes, a provider of indices blending smart beta and thematic investment strategies, is planning to introduce Europe’s first ETF providing dedicated targeted exposure to the global solar industry.
TANN will be the first ETF in Europe providing targeted exposure to the solar energy industry.
The Solar Energy UCITS ETF (TANN LN) will list on London Stock Exchange in June and will come with an expense ratio of 0.69%.
It is being brought to market in collaboration with London-based white-label ETF platform HANetf.
Clean energy revolution
According to EQM Indexes, solar energy’s investment case is more compelling than ever due to two potential catalysts: the commitment from many countries to promote a clean-energy future and the significant decline in renewable energy costs.
On the policy side, more than 100 countries have pledged to achieve net-zero carbon emissions by 2050 due to climate-change mitigation as well as economic considerations such as achieving energy self-reliance.
Global support for the renewable energy segment also comes at a time when major technological advancements over the past decade have led to significantly reduced costs, further helping to drive widespread adoption. In this vein, solar power appears to have an advantage with research from the Solar Energy Industries Association highlighting that it is now the cheapest new source of electricity in most developed countries, undercutting coal and fossil-fuel-based power generation.
These dynamics have led the International Energy Agency to predict that solar will be the largest source of global electricity generation by 2040 with over 35% more installed capacity than natural gas.
Methodology
The fund will gain its exposure to the global solar industry by tracking the EQM Global Solar Energy Index. The index selects its constituents from a global universe of stocks with market capitalizations greater than $250 million and average daily trading volume above $2m. For China-headquartered companies, only American Depository Receipts and Hong Kong-traded shares may be selected.
Firms that are violators of UN Global Compact principles will not be eligible for selection as will companies involved in activities related to controversial weapons or deriving significant revenue from oil sands or fossil fuels.
The methodology screens for companies deriving at least 5% revenue from solar-related business operations. This includes the manufacture of photovoltaic cells and energy storage systems, the production of solar power equipment and components, the provision of solar power installation services, and the financing and development of solar projects.
The index applies a modified equal-weight approach whereby ‘core constituents’ – those deriving more than 60% revenue from solar-related operations – are allocated double the weight of non-core constituents. Reconstitution and rebalancing occur on a quarterly basis.
Due to the index’s focus on the renewable energy segment, the ETF is expected to be scheduled as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
Jane Edmondson, Principal of EQM Indexes, said: “Solar energy is both the cheapest new source of electricity in most countries and the fastest-growing source of new energy capacity. TANN is the first pure-play solar energy ETF in Europe, offering targeted exposure to this important clean energy theme. It has been classed as an article 8 investment under the Sustainable Finance Disclosure Regulation which demonstrates its environmental characteristics.”
Hector McNeil, co-Founder and co-CEO at HANetf, added: “The global solar energy investment opportunity is very exciting for investors and enables them to focus on a global megatrend in the switch away from dirty energy to clean energy. The Solar Energy UCITS ETF provides a more focused opportunity than simply looking at clean energy and is the first pure-play exposure to the global solar energy industry and its growth prospects distinct from the wider clean energy investment universe which takes in more companies and different technologies. It not only expands our offering in the thematic space but adds significantly to our expanding range of clean & renewable energy and ESG ETFs.”
EQM Indexes and HANetf previously partnered on the launch of the Global Online Retail UCITS ETF (IBUY LN) which debuted on LSE in March. This fund tracks the EQM Global Online Retail Growth Index, targeting e-commerce growth stocks worldwide, weighting constituents by revenue growth. It also comes with an expense ratio of 0.69%.