New York-based Global X has unveiled two new climate-related thematic ETFs providing exposure to companies involved in the solar and wind energy industries.
Decreasing costs, supportive regulation, and ongoing innovation are expected to power the growth of solar and wind energy industries over the next decade.
The Global X Solar ETF (RAYS US) and Global X Wind Energy ETF (WNDY US) have been listed on NASDAQ, each with an expense ratio of 0.50%.
Driven by global efforts to mitigate climate change, the adoption of renewable energy production and clean technologies, in particular solar and wind power, has increased dramatically over the past decade.
According to the International Energy Agency, renewables’ share of global electricity generation has gained rapidly on emissions-producing fossil fuels, reaching 29% in 2020, almost 10% more than at the end of 2010.
Many analysts believe this trend is likely to further accelerate over the coming decade as decreasing technology costs, supportive regulatory policies, and ongoing innovation all power further growth in the segment.
Andrew Little, Research Analyst at Global X, said: “We expect to see renewables’ share of electricity production continuing to rise, driven largely by increased wind and solar generation, as well by enabling technologies.
“As economies of scale, greater investment, supportive policies, and market forces further reduce the cost of components like photovoltaic cells and wind turbines, we expect to see clean and renewable energy sources gain further share from fossil fuels.
“To offer investors access to the immense decarbonization potential offered by clean and renewable energy, Global X is bringing investors targeted access to companies involved in advancements in solar and wind energy technologies through the launch of these two ETFs.”
Methodology
RAYS and WNDY are both linked to Solactive indices, namely the Solactive Solar Index and Solactive Wind Energy Index, respectively.
The indices select their constituents from a universe of developed and emerging market stocks with market capitalizations above $200 million and average daily trading volumes greater than $2m. Violators of UN Global Compact principles are not eligible for inclusion.
Security selection is driven by ARTIS, Solactive’s proprietary natural language processing algorithm, which identifies firms linked to a specific theme by screening for related keywords in a company’s publicly available documents.
With reference to the solar theme, ARTIS identifies companies with business operations linked to solar energy materials, solar energy systems and components, solar power production, solar technology, and solar installation, integration, and maintenance.
With reference to the wind energy theme, ARTIS identifies companies with business operations linked to wind energy systems, wind power production, wind energy technology, and wind power integrations and maintenance.
Each index aims to include the 50 constituents with the highest thematic relevance scores while selecting only companies that derive at least 50% of their revenue from solar or wind energy-related operations.
Constituents are weighted by float-adjusted market capitalization subject to certain constraints. The solar index caps the weight of any individual component at 8% and the cumulative weight of stocks with weights above 4.5% at 40%. The wind energy index, meanwhile, caps the weight of any individual component at 12% and the cumulative weight of stocks with weights above 4.5% at 45%.
While there are several thematic ETFs providing broad exposure to the clean energy theme, there are currently only two other funds that specifically target the solar and wind energy industries. These include the $3bn Invesco Solar ETF (TAN US), which comes with an expense ratio of 0.68%, and the $400m First Trust Global Wind Energy ETF (FAN US), which costs 0.62%.