RNRG: As Costs Come Down, Value Goes Up
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RNRG: As Costs Come Down, Value Goes Up

RNRG: As Costs Come Down, Value Goes Up

RNRG, in 2018, changed its focus from yield companies but still has them in the portfolio. Read more to see why we rate the ETF a short-term and long-term Hold.

Bill Phinigan Posted by Bill Phinigan on December 01, 2022

Global X Renewable Energy Producers ETF (NASDAQ: RNRG) seeks to capture the green energy push by providing returns that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Renewable Energy Producers Index.

The fund closely tracks the Indxx Renewable Energy Producers Index, with the 10 companies accounting for 49% of its holdings. RNRG takes a truly global approach towards investing, with holdings in 13 different countries, led by the U.S., Brazil, and New Zealand, accounting for 36% of the assets

RNRG's global approach toward investing sees it holding shares in companies across 13 countries. However, that broad-based approach towards regional investing does not carry over to the sector outlook where it is highly concentrated in utilities.

The top individual holdings include Eletrobras (EBR), the world's fourth largest clean energy company based in Brazil, EDP Renováveis (EDPR), a Spanish renewable energy producer focusing on wind and solar energy, Energy Absolute PCL (OTC: EABPF), a Thai based renewable energy producer focused on manufacturing and distributing electricity from solar, wind power and biomass, and VERBUND AG (OTCPK: OEZVF), an Austrian electricity producer that generates its power mainly from hydro (90%).

The trend toward renewable energy has been increasing year after year. The images of cities blackened by the burning of fossil fuels were only the beginning. After the visual effects came the immediate health concerns, and now the environmental issues associated with fossil fuel energy.

The chart below shows where new energy investment is going. Even the most ardent of fossil fuel supporters can recognize that renewables are a far better alternative in the long run, both for the planet and for investors.

In times of crisis, human nature tends to revert back to what it knows. We have been burning things to produce energy since man first invented fire. After the Fukushima meltdown, Japan declared an end to nuclear power and sadly reverted to fossil fuels, increasing production by 91,000 terajoules from 2010 - 2015. When the Russian pipelines stopped pumping, the first response was for other oil and gas-producing countries to increase production.

The reality is there is still skepticism about renewable energy as fully capable of replacing fossil fuels as a reliable energy source, and until that mindset completely changes, the sector will continue to struggle.

Right now RNRG is seeing a small spike. However, a broader look at where the world demands are suggests that this is not sustainable, and for at least the short term, the demands for fossil fuels will trump any real progress towards a greener Earth.

How things play out in Russia, Ukraine, and OPEC will go a long way toward determining what the world will do vis-à-vis fossil fuel vs renewable energy in the near future. However, it's hard to find anyone who, long term, says that renewable energy isn't the key to reversing global warming, and I believe that is what we should all be working towards.

As with any fund that invests in something "new", the biggest threat is that it doesn't pan out, and we go back to what we know best. In the '70s, nuclear power was all the rage, and if an atomic ETF existed in the '70s, we would have rated it a strong buy. However, 50 years later, nuclear power production capacity is down by 8,000 megawatts, and we are consuming more coal and oil than ever. Ironically, the fears about the dangers of nuclear power never played out, while at the same time, CO2 production from the burning of fossil fuels is one of the leading causes of death on the planet.

Nuclear power capacity is trending down (IAEA)People still want to burn things for power (Our World in Data based on Vaclav Smil (2017) and BP Statistical Review of World Energy - Our World in Data - Fossil Fuels)

RNRG's model of tracking a broad range of green energy-producing companies is fairly straightforward and does not try to do anything fancy. Long term it will be a solid investment, but the question begs, when is the long term? The global energy needs compel the sector to grow and the total planet model makes it capable of capturing more of the upside.

The business latest news today are full of political and social developments from around the world as leaders struggle to respond to this unprecedented crisis. It is an uncertain time, but it is also a time of resilience, creativity, and progress as governments and citizens work together to find solutions.

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