At a time of strength for renewable energy stocks and exchange traded funds and dimming prospects for the traditional energy sector, more ETFs representing the former category are coming to market.
Just days after an existing fund was converted into an alternative energy ETF, another fund joined that rapidly expanding fray on Tuesday with the debut of the First Trust EIP Carbon Impact ETF (NYSE: ECLN).
ECLN “seeks to achieve a competitive risk-adjusted total return balanced between dividends and capital appreciation,” according to First Trust. “Under normal market conditions, the Fund will invest at least 80% of its net assets (including investment borrowings) in the equity securities of companies identified by the Fund's investment sub-advisor, Energy Income Partners, LLC ("EIP" or the "Sub-Advisor"), as having or seeking to have a positive carbon impact.”
Why It's Important
Illinois-based First Trust has some history of success with alternative energy funds. The First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ: QCLN) is 12 years old and has nearly $114 million in assets under management. However, the new ECLN is positioned more as a low carbon play more than a wind or solar fund.
“EIP’s general investment approach is to invest with the regulated monopoly shippers of energy who may benefit when the cost of the energy they are shipping declines, unlike the upstream energy producers whose fortunes are tied to commodity prices,” according to First Trust.
As such, many of the new ETF's 29 holdings reside in the industrial and utilities, sector weights that could help ECLN have lower volatility and a higher dividend yield than legacy clean energy ETFs.
“EIP seeks to own well-managed companies, with capital and financial discipline, that focus on safe, clean and reliable operations. EIP pursues this approach in order to seek the best risk-adjusted return,” according to the fund's manager.
With investors looking to reduce their portfolios' carbon footprints, ECLN could be a well-timed launch. It's an actively managed fund, hence the 0.95% annual fee, but that brings a fresh management style to an arena usually dominated by passive funds. It's possible ECLN gains a following as have so many other First Trust ETFs addressing refined market segments.
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