by Thinking Green: What route should LAM take?
What is a better play? Whether you buy an ETF or a bundle of stocks, aren’t you practically buying the same thing? Read along to see what the Macro team recommends when looking at the latest theme of Thinking Green. No matter what route LAM chooses to take, there is still a great deal of risk taken when entering the markets of Renewable or Clean Energy.
Laker Asset Management’s main concern with purchasing stocks as of October 2019 is running toward the long-term route. To give a specific range of time, the typical long-term investment for an LAM buy should be held for around three to five years, according to the Board Members. With this in mind, the Macro team has developed a short pro/con list explaining why LAM should go in the direction of buying an ETF for the Thinking Green theme rather than buying a bundle of individual companies:
Pros:
- ETF are generally less risky. When measuring risk in terms of investing, the “beta” statistic is often considered when comparing a company/ETF to the S&P 500. An ETF involved taking an aggregate of roughly 30 or 40 individual companies, making the beta as closely correlated to the S&P, ultimately allowing the overall beta of an ETF lower than it would be for a basket of individual companies.
- Dividends are standardized. While some individual companies may pay high dividends related to industry averages, other companies may not pay any at all. ETF dividends are an aggregate of each of the individual stocks, thus providing a great opportunity for additional cash from the initial investment.
- ETF research is already done for us. Companies that put together such equities into these publicly traded ETFs have already ticked apart every single part of the company imaginable. Why go through the pain of analyzing each individual company when a group of trained professionals have already done it for us?
Cons:
- While LAM is buying an ETF that already contains dozens of companies, we may not be certain on what we’re actually investing in. Out of all of the individual companies included in the ETF, some of them may not 100% apply to the theme that LAM is focused on. It is important to stay consistent with the current theme and make sure each equity goes along with it.
- Some equities included in the ETF may not correlate properly with the S&P 500. Green energy stock ABC, for example, may find success in other areas when compared to a typical solar stock. It is dangerous to have outliers like the imaginary ABC company since it may hinder the overall ETF from growing with the rest of the market.
Some ETFs that are good options for “Thinking Green”
- TAN – Invesco Solar ETF issued by Invesco. This seems to be the most popular ETF to buy when it comes to Green Energy; based mostly on solar indexes.
- ICLN – iShares Global Clean Energy ETF issued by BlackRock. This ETF is a great conservative bundle that holds companies worldwide that produce energy from solar, wind and other renewable resources.
- ACES – ALPS Clean Energy ETF issued by ALPS. This ETF has one of the highest 3-month turnovers in the clean energy ETF industry, and holds mostly alternative energy equities.