The ethical investor favourite iShares Global Clean Energy (INRG) exchange-traded fund has undergone a makeover with index provider S&P making changes that add diversification but could dilute its clean energy theme.

The ETF - which soared ahead of Joe Biden’s win in the US Presidential election and returned 140% in 2020 - follows the S&P Global Clean Energy index, which was made up of 30 large cap stocks in areas like wind and solar power, including the likes of renewable energy giants Vestas and Orsted.

FROM 30 TO 84 HOLDINGS

Following the changes, the number of stocks in the ETF has risen to 84 and now also includes companies which have exposure to renewable energy but aren’t pure play clean energy stocks.

S&P also said it may make further changes to the index to include emerging market stocks and broaden the definition of clean energy businesses to include the likes of marine energy and energy storage companies.

The iShares ETF, which holds around $5.4 billion of investors’ money, has reversed some of its gains so far in 2021, falling 23.4% year-to-date as the market moves away from growth stocks which up until recently made up the bulk of the index, in favour of value stocks.

EXPERT VIEW

AJ Bell's head of passive portfolios Matt Brennan said overall the changes could be positive for investors, given the increase in holdings raises the investment capacity by a multiple of three, but warned it could dilute the clean energy theme.

He said: ‘There aren’t too many other options out there to back this theme without running a large portfolio of shares yourself, so investors are likely to accept the changes and remain invested.

‘On balance, we feel the index changes are a positive, however, it does serve as a reminder for investors in ETFs to understand what you are buying, especially as the number of ETFs in the market expands.’

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Issue Date: 05 May 2021