This fund is ideal for those who want a no B.S. approach to sustainable investing. Due to the thematic investing approach, you can have peace of mind knowing that your money is helping to fund actionable change in the global energy industry. It is awesome that the current demands for clean energy are lined up with the exposure of the ICLN fund, and it seems like that will remain true for the time being. However, because there is higher risk associated with the ICLN fund it may be more fitting for investors who are more risk tolerant and view the long-term gains to outweigh any short-term losses.
Pros: I have given the ICLN fund an overall positive review because I am a firm believer that our current global energy systems need to see drastic change, and soon. This fund targets global clean energy companies aligned with SDGs 7, 11, and 13, and I think has the capability to be oriented towards even more (i.e. 8, 9, and 10). The thematic investing approach gives this ETF fund an edge, and it continues to grow alongside the increasing demands for greater climate action through green energy solutions.
Cons: The lack of diversification and higher P/E ratio means there is greater risk associated with this fund.
ICLN is one of a few ETFs that captures the growing renewable energy trend. In addition to holding the companies that produce renewable energy (solar, wind, biothermal, etc.), ICLN also includes companies that develop technology and equipment used in the clean energy industry. The index tracks the performance of 30 all-cap clean energy-related companies from a global sector view. At the time of this review, the iShares site states that the fund has a total of 5.35B assets under management, making ICLN the largest renewable energy ETF of the 12 ETFs traded on the U.S. markets. The 12 renewable energy ETFs have a total of $16.58B assets under management.
Its top ten holdings (50.36% of total assets) as of today (3/11/21) are shown below.
|Plug Power Inc (PLUG)||8.89%||Industrials|
|Enphase Energy Inc (ENPH)||5.29%||Information Technology|
|Verbund AG (VER)||5.08%||Utilities|
|Daqo New Energy Corp ADR (DQ)||4.94%||Information Technology|
|Siemens Gamesa Renewable Energy SA (SGRE.BC)||4.49%||Industrials|
|Meridian Energy Ltd (MEL.NZ)||4.25%||Utilities|
|Ormat Technologies Inc (ORA)||4.12%||Utilities|
|Orsted A/S (ORSTED)||4.02%||Utilities|
|Vestas Wind Systems A/S (VWS)||4.02%||Industrials|
|Contact Energy LTD (CEN)||3.94%||Utilities|
As of February 2021 ICLN has achieved an MSCI ESG Fund Rating of AA. The fund’s ESG Quality Score, which is 7.3 out of 10, determines the rating and is calculated using the weighted average of the ESG scores of fund holdings. The AA rating means that MSCI considers the ETF to be an ESG Leader in their industry. ESG Leaders get this title because they manage the most material ESG risks and opportunities.
The 30 holdings are distributed across three main sectors: Utilities, Industrials, and Information Technology. The fund is considered non-diversified because all holdings are clean-energy related companies. There is a higher risk associated with non-diversified ETFs because all the holdings operate in the same industry, therefore if the industry as a whole takes a hit so will the ETF. Additionally, a bad day for just one or two companies in said industry can hurt the prices of all related stocks. iShares product page says that the ICLN ETF has a price-to-earnings ration of 34.91 as of today. This higher P/E ratio means that investors are willing to pay a higher share price today because of the speculative growth expectations in the future. The P/E ratio being about 35 means people are paying high multiples for shares (shares are priced higher than what the company is currently earning). A high P/E ratio does not necessarily mean that the stock is overvalued, but it does add more risk. With such a limited selection of ETFs that align so strongly with environmental sustainability, it may be difficult to find lower-risk alternatives with the same sustainable investment exposure that ICLN provides.
The fund has been performing impressively well with a 112.20% 1-Year Daily Total Return, according to Yahoo Finance, and a 38.27% 3-Year Daily Total Return. It is quite significant that ICLN has been performing so well despite not having Tesla (TSLA), a very strong performer in the clean energy space. The robust and growing renewable energy trend is supported by President Biden’s climate policies and his $2 trillion commitment to expand clean energy and its infrastructure. We have also seen the cost of renewable energy consistently drop over the past few years, with the U.S. renewable energy prices beating coal prices in 2018 and falling even lower in 2019. ICLN stands to benefit from the mass consumer adoption of clean energy pushed by its lower electricity costs. Finally, the COVID-19 global pandemic has increased the demand for stronger policies regarding climate change and preventative action against another global crisis. As a result of this trend, ICLN has almost tripled since March 2020, and I am hopeful that it will continue to grow further.
The ICLN fund holds positions in 30 clean-energy related companies. Rather than just limiting certain sin stocks that would negatively impact the ESG metrics, the ICLN fund uses a thematic investing strategy. This means that all investments in the ETF are contributing to the global diffusion rates of clean/renewable energy. Choosing companies that help to further advance this overall goal of the ETF seems to be a much more sustainable approach, whereas other ESG funds only perform exclusionary screenings to meet certain benchmarks. Based on MSCI ESG Research analysis, the ICLN fund is strongly aligned with 3 Sustainable Development Goals: #7 Affordable and Clean Energy, #11 Sustainable Cities and Communities, and #13 Climate Action.
For example, Enphase Energy Inc, currently in the #2 holding position, made strategic moves in the 2-18 FY that strongly align with the 3 SDGs. 50% of its revenue was derived from products or services that helped reduce energy consumption, and the other 50% from supplying alternative energy or providing the products or services to do so. The company also offers smart grid and demand-side management systems as well as manufacture technology for solar PV energy production and storage.
A “passive” or indexing approach is used to achieve the fund’s investment objective. According to ICLN’s 2020’s Prospectus report LCLN, “Unlike many investment companies... does not try to ‘beat’ the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.” There is no active management of the portfolio because they use more of a hands-off approach.
This global ETF is managed by BlackRock’s iShares. ICLN’s inception date is 6/24/2008. iShares’ portfolio managers Rachel Aguirre, Jennifer Hsui, Alan Mason, Greg Savage and Amy Whitelaw are primarily responsible for the day-to-day management of the ICLN fund. ICLN is considered a thematic ESG fund because it focuses on a particular trend in ESG. Thematic ESG funds target exposure to global developed markets with structural economic themes (i.e. low carbon, clean energy). Thematic investing can help you capitalize on upcoming trends and also concentrate your investments according to your specific interests and ESG goals. While the lack of diversification in these kinds of funds can lead to a riskier investment, the thematic investing approach leads to a more carefully curated fund to keep the focus on a particular E, S, or G trend. Investing in global companies dedicated to clean energy makes the ICLN fund strongly oriented toward SDGs 7, 11, and 13.
iShares also uses “megatrends” to categorize their ESG ETFs. The ICLN fund falls under the megatrend of Climate Change & Resource Scarcity which recognizes the demand for a more sustainability future and how such a demand will drive advancements in energy and conservation. BlackRock has various different sustainable investing funds that have different index strategies. The ICLN fund is one of iShares “megatrends ETFs”: 14 ETFs distributed among 5 megatrends that are meant to encourage positive change in the trajectory of the global economy.