Can this ETF harness the clean energy boom?

The Invesco WilderHill Clean Energy ETF is up 8% this year. It is likely benefitting from top holding Rivian’s share price pop, as its electric vans for Amazon are delivered in Europe. While interest rate hikes have dragged clean energy stocks down, policy moves towards a decarbonised US economy should benefit the fund in the long run.

• Top holding Rivian stock soars as Amazon deploys its vans in Europe.
• The fund is facing ongoing interest rate headwinds for clean energy stocks.
• The Inflation Reduction Act could drive future growth for the Invesco Wilderhill Clean Energy ETF.

The Invesco WilderHill Clean Energy ETF [PBW] is up 8.3% year-to-date, but flat over the last week, despite its top holding Rivian Automotive [RIVN] having shipped its first electric delivery vans to Amazon [AMZN] in Europe.

The fund, which offers exposure to companies held in the WilderHill Clean Energy Index, may be benefitting from President Joe Biden’s focus on greener policies in his landmark Inflation Reduction Act (IRA). This includes tighter regulations for fuel emissions, tax credits for electric vehicles (EVs) and a push for a greater number of EV charging stations.

As the US moves towards a carbon-free economy, ETFs focused on investment in clean energy, such as PBW, could see positive movement from policy tailwinds.

However, clean energy stocks have experienced mixed fortunes this year. High interest rates continue to weigh on performance in the sector, as many green energy companies are startups that rely on capital investment.

Rivian soars as Amazon vans land

Rivian is the largest holding in the PBW fund, with a weighting of 2.36% as of 7 July. In the past week, the stock has jumped 26.3%.

The company has had a run of tough financial quarters and production problems. However, Wedbush analyst Dan Ives says Rivian is “seeing light at the end of the tunnel”: “We believe after a number of ‘one step forward, two steps back’ excuses for Rivian and supply chain headaches, the company is finally making a major turn towards executing on its longer-term business model,” he said.

Rivian’s vehicle production for the second quarter (Q2) of 2023 beat forecasts; the company says it will likely meet its 50,000 vehicle guidance for 2023. Amazon’s announcement that it is using Rivian’s electric vans beyond the US is another positive step.

US-based silicone battery maker Enovix [ENVX] accounts for 1.86% of fund assets. The company designs high-energy batteries for mobiles, and is working on EV technology. On 15 June, it announced it passed its 18,000-cell production target early, and expected to perform ahead of its guidance for Q2.

The company’s share price has rallied 50.6% year-to-date, though it is flat in the past week.

Zero-carbon targets on track

A report from Deloitte earlier this year highlighted how headwinds including high interest rates, inflation and supply chain issues have thwarted its growth.

However, Deloitte also said the IRA should help the sector thrive, with potential growth in 2024 as demand rises. The US government has set a target of net zero emissions by 2050, and stocks of companies supporting this goal may benefit over the long term, including those held in the Invesco WilderHill Clean Energy ETF.

Analysts at Wedbush are giving Rivian stock an ‘outperform’ rating, raising the 12-month price target to $30 from $25, which would represent a 21.5% hike from the stock’s last close on 7 July.

At CNN Business, 12 analysts are offering a forecast for Enovix stock, with a median 12-month price target of $20.50, only 9.4% above its last close on 7 July. However, 12 out of 12 analysts recommend to ‘buy’ the stock.

At TipRanks, based on a consensus of 533 analysts, the recommendation is to ‘hold’ the PBW fund. However, their median 12-month price target of $58.33 would be a substantial 43.3% jump from its last close of $40.72.