For an investment bolt-on, I like the undeniable trends. Climate change is likely the most pressing and challenging and important event of the century. No matter where you stand on climate change (politically or scientifically) there is no denying that countries and companies around the globe are creating more sources and levels of clean energy. These efforts are supported by government policies and incentives. On the flipside, CO2 is being taxed on a global scale. Investors have many forces on their side. You might add clean energy by way of ETFs or individual stocks. We’re adding clean energy to your portfolio on The Sunday Reads.
In the Globe and Mail (pay wall) Scott Barlow share some details from a Credit Suisse report that sees a buying opportunity in these renewable power stocks. From that post.
From our perspective, largely on the basis of coherent NAV driven approaches to valuation, rather compelling opportunity set is present in some of the renewable stocks with one of the most fundamentally favourable narratives across a variety of sub-sectors.
The stock route
The stocks mentioned as presenting opportunity are Brookfield Renewable Power LP, Innergex Renewable Energy Inc., Northland Power Inc. in the core pure play renewable stocks, plus Capital Power Corporation and TransAlta Corporation.
Renewables and clean tech and the utilities sub sectors have been laggards compared to the oil and gas producers in 2021.
And within this tweet you’ll see the performance comparison between the energy sub sectors.
Energy producers have been on an incredible run as the earnings and free cash flow has been soaring in the latest quarter. No sector or sub sector is projected to have more generous earnings and free cash flow growth as traditional energy producers. The (unfortunate) energy reality is that we will need considerable (and increasing) amounts of oil and gas over the next several years.
The energy reality and opportunity
Our clean energy desires will continue to run head on into that energy reality. That’s why there is likely opportunity in both traditional energy producers and and the renewables. The energy transition will take decades to complete.
Readers will know that I am also invested in traditional oil and gas stocks. I also hold the two major Canadian pipelines that deliver that oil and gas.
The pipelines are delivering the dividends.
Stocks or ETFs for clean energy for your portfolio
You could certainly do more research and decide to buy a basket of renewables and clean tech stocks that might include that list offered by Credit Suisse. And you’ll find those names in the Canadian utilities ETFs such as iShares Capped Utilities ETF XUT and BMO’s Equal Weight Utilities ETF ZUT.
The weighting is significant. From the iShares site.
I would be more inclined to add a basket of individual stocks (do the same perhaps if you’re comfortable doing the research or have resources that you trust on the research front. The yield for the sector ETFs ain’t what it used to be. Over the last decade and more, the sector has been on a very strong run as investors and retirees search for yield in a period of increasingly low bond yields.
The yields are currently just above 3%.
A Global Clean Tech ETF
You might also look to the Harvest Clean Energy ETF. You would gain some additional diversification and add a global tilt.
My wife and I are invested in EV (electric vehicle) and battery ecosystem by way of the BATT ETF. The world will need the materials necessary to create the battery demand. Investors also have exposure to the companies that create the technologies required. You’ll even find Tesla in there at a very generous weighting of 6.9%. It is the top holding.
Keep in mind that is a U.S. dollar ETF.
Portfolio green shift
Many countries and automakers are pledging to go completely EV over the next decade and more. That stretch goal is likely not possible, but hey, I’m going along for the ride. This is an other undeniable trend. Ironically, I plan to use traditional oil and gas capital appreciation plus the dividends along with the generous pipeline dividends to feed my clean tech holdings. Our portfolios will execute a very modest green shift.
The bulk of our investments are within a core approach. On that you might consider the new balanced ETF portfolio. We use a mix of ETFs and individual stocks. The clean energy shading is part of the explore.
The core and explore
On MoneySense Jonathan Chevreau is rethinking his core and explore approach. That’s a very good post. Jon offered …
Typically, you “explore” by picking individual stocks or ETFs in an aggressive sector or region, attempting to time the market, or indulging in the investing universe’s more speculative positions such as IPOs, SPACs (special purpose acquisition companies), or cryptocurrencies. As this column confessed, I’ve fallen prey to most of these indulgences at one time or another, even though the lion’s share of my portfolio remains ETFs—both index ETFs and actively managed more specialized ETFs—as well as the odd mutual fund.
On the topic, that’s why I like to keep and explore to the solid investment ideas, not stock picks or speculative investments. On speculative investments and from early 2019 I offered – how do you invest in the cannabis sector?
It has been a wild ride, but investor interest is getting a lift over the last year as analysts see real profits (compared to hope) starting to arrive. From the Horizons HMMJ page.
I’m interested in the sector. I won’t consume until I see more on the real earnings front.
For more thematic ETFs I’d suggest that you visit that Harvest Portfolio site. Also, check out Evolve ETFs. And as you explore keep in mind the difference between speculating and investing. You might also keep your exploring to a modest level of 5% to 10% of portfolio weighting.
My MoneySense Weekly
After a one-week hiatus we are back with a doozy, here’s making sense of the markets. In case you haven’t heard, there’s a federal election in Canada. It appears that many money-issues might rise to the top of the election and voter agenda.
More Sunday Reads
And on Findependence Hub, John DeGoey looks into some behavioural biases and how investors feel gains and losses differently.
On My Own Advisor Mark offers how he sees the six stages of financial independence. That is a very solid post that includes …
- Save early, save often. Maintain a modest savings rate.
- Automate your savings for wealth-building.
- Diversify your investments, although own mostly stocks over bonds.
- Minimize your investing costs.
- Rinse and repeat until wealthy.
And Mark’s Weekend Reads is the fighting inflation edition. Yes, if your time horizon is 100 years stocks did the trick, ha. Keep in mind stocks fail in a few periods. That is of consideration for retirees and near retirees. Stocks need help for periods of inflation, stagflation and economic contraction.
An all-equity portfolio is a very bad idea for most retirees. Surprisingly that fact is not the prevailing opinion for a wide swatch of self-directed investors. You’d be hard-pressed to find an advisor that would recommend the all-equity approach. If you do find one, run away.
On Tawcan Bob looks at his $115,000 of transactions in 2021.
Enoch at Savvy New Canadians compares two of the leading discount brokerages in Canada.
Many Cut The Crap Investing readers have done the research and land at Questrade where they can buy ETFs for free. That is Canada’s fastest growing brokerage for good reasons IMHO.
Related post: Real advisors will not be intimated by those wonderful Questrade ads.
On the dividend front, a look at July activity on All About The Dividends.
On The Dividend Guy (podcast) – 5 U.S. dividend stocks to hold forever. Here is our U.S. stock forever holds.
And on the Maple Money podcast, from renting to real estate millionaire.
Looking overseas …
Major European nations have not yet recovered from COVID. Spain still has the bigger hill to climb.
Back to school and RESPs
As parents get ready to send their kids back to school, saving for higher education might be on their minds. The RESP program is a must to gain those free government grant monies. Of course you should avoid those Group RESP plans you’ll see advertised, they are a terrible high-fee trap.
A wonderful RESP solution for Canadian parents can be found at Justwealth. Here’s the smart way to invest in the RESP at Justwealth. They offer low-fee target date ETF portfolios that adjust the risk level along the way.
Parents might also create their own ETF portfolio for their RESP. And here’s now to use the asset allocation ETFs for that RESP.
Cut your fees, get some offers here …
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads and easy to read.
You will also earn a break on fees by way of many of those partnership links.
I also have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio ,Wealthsimple, Nest Wealth and Questwealth from Questrade.
Consider Justwealth for RESP accounts. That is THE option in Canada.
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 1.25%. You’ll find some higher rates on certain GICs. They now also offer U.S. dollar accounts.
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Dale
Regarding renewables.
You missed Boralex (BLX) and Algonquin Renewable (AQN)
Here are my feelings on BLX, INE & NPI. The debt levels are through the roof and they aren’t dividend growers. I will not touch them for that reason.
CPX and AQN have reasonable debt levels and regularly grow their dividend. For this reason I hold both.
BEP.UN is in a class of its own. The whole Brookfield structure is so convoluted that as an individual investor I cannot make sense of their financial structure. This leaves me at the mercy of analysts who have the ability to decipher Brookfield. For this reason, even though the gains have been robust, I avoid any Brookfield entity.
I have looked at Transalta in the past. Although debt levels are reasonable, at this point it is a pass for me.
But I just don’t understand why anyone would invest in the likes of BLX, INE or NPI.
Innergex hasn’t made a profit in two years. Boralex did manage a profit in 2020, but a PE of 90? No value there IMO. NPI does consistently make a profit (I will give them that), but I see it as still overvalued with a PE of 50, and they haven’t raised their dividend in quite a while. Buying any of these three is speculation in my books.
I do watch the sector looking for any hint of value, but as a person that leans to dividend growth I will stick to the names that deliver it.
My $0.02 worth anyway. FWIW, the first link almost ‘head faked’ me, lol!
Thank Rick, always appreciate your input. We certainly have to do our own research. I will start looking at these names, and more in the space. Like you I want to see real earnings and sensible valuations.
Dale
Can’t be true. I’ve been investigating this matter for a few years getting data from the most expert websites such as compacom.com, nerdwallet.com, finder.com, etc and I’ve never met such an opinion. Check it out yourself.