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A Look at Pickens ETF to Honor His Memory

Sanghamitra Saha

Legendary oil investor T. Boone Pickens passed away on Sep 11 at the age of 91. The oil tycoon“made his billion-dollar fortune on the back of oil through Mesa Petroleum and his energy-based hedge fund, BP Capital.” However, Pickens surrendered his energy-focused hedge fund in January 2018 after a “roller-coaster ride” for 22 long years. Fading glory of oil trading was the reason behind this decision.

An oil ETF originally named NYSE Pickens Oil Response ETF (BOON) was also launched in early 2018 by the name of Pickens. This fund was initially meant to focus on companies, the performance of which positively correlates with that of ICE Brent Crude Oil Futures.

However, the fund now trades as the Pickens Morningstar Renewable Energy Response ETF RENW and tracks the Morningstar North America Renewable Energy Index rather than the NYSE Pickens Oil Response Index.

This is quite a different stance as BOON used to include “stocks that had high correlations to the price of Brent crude oil” (read: Behind the Changes in Strategy in Pickens ETF).

Inside RENW

The underlying Morningstar North America Renewable Energy Index is a rules-based, equal-weighted index of U.S. and Canadian-listed common stocks of companies in North America that are leaders in the transition to a low-carbon economy.

The fund intends to mitigate the downside and make the most of renewable energy cycles by investing in producers and consumers, as against more narrowly- focused renewable energy funds. The fund holds about 82 stocks in total.

Utilities accounts for about 46% of the fund, followed by industrials (15%) and technology (12%). No stock accounts for more than 2.87% of the fund. The fund charges 65 basis points (bps) in fees.

How Apt is the Investing Objective in Today’s Environment?

Green investing is in vogue. The share of renewables in meeting global energy demand is anticipated to grow by one-fifth, over the next five years, and reach 12.4% in 2023.

Clean energy jobs are thriving in the United States. Overall, clean energy jobs increased 3.6% in 2018, primarily backed by employment in the wind energy space. The San Francisco municipal utility plans to focus on 100% renewable energy, which would necessitate more construction of solar and wind facilities.

There is news that some states, including California, are using solar subsidies to boost solar power adoption. California, in fact, mandated all new homes to be constructed from 2020 to have solar power. Thus, it makes sense for the issuer to target the renewable segment (read: Forget Trump Budget, 5 Green ETFs Crushing the Market).

How Tough is the Competition?

The fund has managed to garner only $3 million in assets so far. There are a number of clean energy ETFs available in the market. The Invesco Solar ETF TAN (which charges 70 bps in fees) has amassed about $432 million in assets. Apart from this, the iShares Global Clean Energy ETF ICLN (which charges 46 bps in fees) is another product in the space that has gathered sizable assets ($342.5 million). The newly-transformed fund RENW has to compete with these long-standing products in the space over the long term. On an expense ratio point of view, RENW charges pretty competitively.

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iShares Global Clean Energy ETF (ICLN): ETF Research Reports
Invesco Solar ETF (TAN): ETF Research Reports
Pickens Morningstar Renewable Energy Response ETF (RENW): ETF Research Reports
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