Longterm Investing Renewable ETFs

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Slothmeister
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Longterm Investing Renewable ETFs

Post by Slothmeister » Tue Oct 10, 2017 12:25 pm

I've invested into Fidelity - Total Stock, Total Int'l and 500, but I'm leery of putting all of my equity in these benchmark index funds for a 10-12 year run. From what I'm hearing, many on here don't think the market will return more than 5% in the next 10 years. Five percent isn't bad but it could be better. Would it be wise to take a shot at some renewable energy ETFs and see how they do in the next 10-12 years? It looks like renewables will grow quite a bit in that period. Especially with the growth of energy storage. The only question is which companies will capitalize in that time-frame. With ETFs, such as TAN, FAN and/or ICLN, isn't the composition subject to change based on performance? So if renewables will gain in the next 10-12 years, I'm banking that these ETFs can change according to performance and pick up the best producers in the market? I know the expense would be higher than a low-cost index fund, but the return could be pretty sizable. Also, does anyone know how ETFs differ regarding expenses to Index Funds?

Dottie57
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Re: Longterm Investing Renewable ETFs

Post by Dottie57 » Tue Oct 10, 2017 12:35 pm

How are ETF's renewable? You just own them :shock:

Valuethinker
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Re: Longterm Investing Renewable ETFs

Post by Valuethinker » Tue Oct 10, 2017 12:43 pm

Slothmeister wrote:
Tue Oct 10, 2017 12:25 pm
I've invested into Fidelity - Total Stock, Total Int'l and 500, but I'm leery of putting all of my equity in these benchmark index funds for a 10-12 year run. From what I'm hearing, many on here don't think the market will return more than 5% in the next 10 years. Five percent isn't bad but it could be better. Would it be wise to take a shot at some renewable energy ETFs and see how they do in the next 10-12 years? It looks like renewables will grow quite a bit in that period. Especially with the growth of energy storage. The only question is which companies will capitalize in that time-frame. With ETFs, such as TAN, FAN and/or ICLN, isn't the composition subject to change based on performance? So if renewables will gain in the next 10-12 years, I'm banking that these ETFs can change according to performance and pick up the best producers in the market? I know the expense would be higher than a low-cost index fund, but the return could be pretty sizable. Also, does anyone know how ETFs differ regarding expenses to Index Funds?
There were dozens of PC companies in 1980. Apple and Microsoft would not list for years. DEC the logical innovator failed utterly to do so and went from world's largest (2nd) computer company to be sold for scrap to Compaq which was later sold for little to hp.

In other words you can see the changes coming, and I do, but I don't believe I can pick the winners. And they may not even exist yet.

Read Burn Out by Dieter Helm's for a bracing and thought provoking view of what happens to incumbent energy producers in the brave new world. The answer is they are unlikely to survive.

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Christine_NM
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Re: Longterm Investing Renewable ETFs

Post by Christine_NM » Tue Oct 10, 2017 1:03 pm

We will need high-density energy (oil, nat gas) for our lifetimes. Renewables are a tiny percentage of all energy sources. If you must do this, an ETF that really covered the sector would help avoid picking the losers.

The problem with sector bets is that you can only put a small percentage in them. You don't want to bet the farm on solar. Then if one solar company is ever a big, consistent winner your profit will be small because you did not bet enough and it is further diluted because you bought an ETF. But if you bet too much you will probably lag the 5% or so that the market will give you if you let it.

Go ahead and dream about possibilities but be sure to act on the real probabilities.

GL
17% cash 47% stock 36% bond. Retired, w/d rate 2.85%

Slothmeister
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Re: Longterm Investing Renewable ETFs

Post by Slothmeister » Tue Oct 10, 2017 2:03 pm

"In other words you can see the changes coming, and I do, but I don't believe I can pick the winners. And they may not even exist yet."

But isn't that why an ETF is perfect for this type investment since it has several companies within that make up the ETF? I'm not 100% sure of how an ETF works, but doesn't an ETF manager buy up promising start ups and jettison subpar performing companies?

Slothmeister
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Re: Longterm Investing Renewable ETFs

Post by Slothmeister » Tue Oct 10, 2017 2:04 pm

Christine_NM wrote:
Tue Oct 10, 2017 1:03 pm
We will need high-density energy (oil, nat gas) for our lifetimes. Renewables are a tiny percentage of all energy sources. If you must do this, an ETF that really covered the sector would help avoid picking the losers.

The problem with sector bets is that you can only put a small percentage in them. You don't want to bet the farm on solar. Then if one solar company is ever a big, consistent winner your profit will be small because you did not bet enough and it is further diluted because you bought an ETF. But if you bet too much you will probably lag the 5% or so that the market will give you if you let it.

Go ahead and dream about possibilities but be sure to act on the real probabilities.

GL
I've got 24% globally from this source:
https://yearbook.enerdata.net/renewable ... share.html

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Christine_NM
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Re: Longterm Investing Renewable ETFs

Post by Christine_NM » Tue Oct 10, 2017 3:15 pm

Sloth --

Will you buy a global renewable-energy ETF? Which one?

(I wrote "tiny sliver" because I was thinking of wind and solar, not nuclear. I can't find what your link considers to be renewable sources. Looks like it may include nuclear.)

ETA - Site is definitely emphasizing hydroelectric -- is there an economic interest hiding in these numbers?
Last edited by Christine_NM on Tue Oct 10, 2017 3:29 pm, edited 1 time in total.
17% cash 47% stock 36% bond. Retired, w/d rate 2.85%

Slothmeister
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Re: Longterm Investing Renewable ETFs

Post by Slothmeister » Tue Oct 10, 2017 3:27 pm

Possibly TAN, FAN and/or ICLN

I could include nuclear. I'm not sure.

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TinkerPDX
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Re: Longterm Investing Renewable ETFs

Post by TinkerPDX » Tue Oct 10, 2017 3:34 pm

This is a sector bet like any other. Faithful Bogleheads oppose sector bets.

If clean energy really will outperform, the market should know that, so it should be "priced in" such that there won't really be any free lunch to be had. It's therefore inconsistent with our basic principle of buying the market, trusting cap-weight allocation, and focusing on keeping costs down.

But I suppose we all cheat a little here and there on the edges...I'll admit that I have a small portion of my portfolio in each of ICLN, TAN, and FAN. I don't add to them and I don't count them as part of my overall AA, and they are an increasingly small part of our NW (<10% now). I decided to literally invest in the clean energy industry in part because I think (and/or hope) it will outperform, and in part to offset the part of my portfolio that has negative exposure to a price on carbon emissions. (Though it's also consistent with tilting toward small, value, and EM--albeit less so on all three of those with FAN/wind.)

One thing you'll find disappointing is that clean/non-fossil energy stocks tend to track oil to some extent, since that drives the price of all energy in today's economy.

I haven't found anything better than ICLN, TAN, and FAN. Some overlap between ICLN and each of TAN (11 companies) and FAN (5 companies), but enough difference that none is fully redundant.

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friar1610
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Re: Longterm Investing Renewable ETFs

Post by friar1610 » Tue Oct 10, 2017 3:50 pm

Slothmeister wrote:
Tue Oct 10, 2017 2:03 pm
"In other words you can see the changes coming, and I do, but I don't believe I can pick the winners. And they may not even exist yet."

But isn't that why an ETF is perfect for this type investment since it has several companies within that make up the ETF? I'm not 100% sure of how an ETF works,but doesn't an ETF manager buy up promising start ups and jettison subpar performing companies?
Your idea may be a good one or it may not. But before you commit any money you should make sure you clearly understand how ETFs work generally and how those you're considering do in particular. Not trying to be pedantic but your statement above seems to me to be a red flag.
Friar1610

Valuethinker
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Re: Longterm Investing Renewable ETFs

Post by Valuethinker » Tue Oct 10, 2017 3:52 pm

Slothmeister wrote:
Tue Oct 10, 2017 2:04 pm
Christine_NM wrote:
Tue Oct 10, 2017 1:03 pm
We will need high-density energy (oil, nat gas) for our lifetimes. Renewables are a tiny percentage of all energy sources. If you must do this, an ETF that really covered the sector would help avoid picking the losers.

The problem with sector bets is that you can only put a small percentage in them. You don't want to bet the farm on solar. Then if one solar company is ever a big, consistent winner your profit will be small because you did not bet enough and it is further diluted because you bought an ETF. But if you bet too much you will probably lag the 5% or so that the market will give you if you let it.

Go ahead and dream about possibilities but be sure to act on the real probabilities.

GL
I've got 24% globally from this source:
https://yearbook.enerdata.net/renewable ... share.html
This is only electricity which is 30 to 40 per cent of energy consumption.

That includes hydro electricity I believe. That is not going to grow by much except in Africa and to some extent Latin America.

It also violates many of the key criteria of sustainability. Big hydro electric projects cause huge environmental harm and harm to local inhabitants and First Peoples.

Nuclear besides the unresolved waste issues and safety riskS (Chernobyl will take centuries to decontaminate, Fukushima we do not even know how) there is simply the cost issue. Hinckley C (3rd generation EpR is AReva technology, will be the most expensive power station ever built with an inflation linked electricity price guaranteed for 35 years by the UK government at twice current wholesale electricity prices is 3 to 4x Texas wholesale prices).

not4me
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Re: Longterm Investing Renewable ETFs

Post by not4me » Tue Oct 10, 2017 4:02 pm

OP, you seem to have some question about ETFs separate and apart from whether a sector bet is a good idea. I'll chime in on that part some. You mentioned:
doesn't an ETF manager buy up promising start ups and jettison subpar performing companies?
The ETF manager will track an index & should make changes based on changes to the index. The relative weight of each company will change as the market cap changes, which may or may not accurately reflect 'promise' or 'sub-par'. But both sub-par & promising may be in the ETF to accurately reflect the index. How are expenses set? The manager will likely charge whatever they can. That is, if there is demand & few competitors, they'll charge more than a high volume index.

Whether or not your theses is right, consider a few things about these you mentioned. They are mostly non-US and do not have many holdings. I don't know if they attempt to hedge currency effects. Market cap varies. Another poster mentioned the overlap in terms of number of companies (not weighting), but you might want to also see how concentrated they are. Some of the companies are not "pure play". As an aside, I understand that more and more work in these areas is being done in companies where this is not the main thing. The daily volume is low & overall size is small enough that they may not survive as an etf for the time frame you mentioned.

Good luck in your decision!

Valuethinker
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Re: Longterm Investing Renewable ETFs

Post by Valuethinker » Tue Oct 10, 2017 4:05 pm

Slothmeister wrote:
Tue Oct 10, 2017 2:03 pm
"In other words you can see the changes coming, and I do, but I don't believe I can pick the winners. And they may not even exist yet."

But isn't that why an ETF is perfect for this type investment since it has several companies within that make up the ETF? I'm not 100% sure of how an ETF works, but doesn't an ETF manager buy up promising start ups and jettison subpar performing companies?
Largest stocks by market cap in the sector. Startups like Google only joined the stock market when they were valued at many billions of dollars.

But how the sector is chosen is determined externally.

Renewables will be huge. How huge is probably something we don't imagine well right now. Solar will be the cheapest energy source on the planet and probably within 20 years give or take it won't be 10 but it won't be 30 either. Forecasts have consistently underestimated the speed of progress in this area.

But it's not the internet service providers who make big money out of the internet. It's the internet application companies like Google and Facebook. The users of the internet. Amazon and netflix not Cisco.

It is the companies that adapt rapidly to using cheap electrical energy and that can operate in a highly emission constrained world that will prosper.

One should remember also that the greatest valuation creation sector in the last 30 years is probably big tobacco. Shareholders have coined it owning these stocks. You can make a lot of money in a declining industry due to high barriers to entry.

Nate79
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Re: Longterm Investing Renewable ETFs

Post by Nate79 » Tue Oct 10, 2017 7:15 pm

What do you know about renewable energy that the market doesn't already know and has already priced in?

Slothmeister
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Re: Longterm Investing Renewable ETFs

Post by Slothmeister » Tue Oct 10, 2017 8:10 pm

I only know that renewable energy probably will be a big deal in the future. They already consist of over 20% of global energy share and it's only going to grow. Right now they're treading water with slight returns and with high expense rates and turnover ratio they are not very attractive. FAN and TAN apparently have a kicker that ramps up the expense from .60% and .71% to .95% and .88% at the start and end of the new year. ICLN isn't too bad at .48% but its performance is not good at this time. I think I'm going to hold off on this idea. Thanks for the responses!

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