Renewable energy equities are struggling. That is highlighted by sour performances in related ETFs over the course of 2023 and starting 2024. But the outlook for long-term decarbonization efforts remains bright. Some experts believe that could stoke renewed interest in and upside by green energy equities. If those positive implications are realized, the benefits could affect assets such as the KraneShares Electrification Metals Strategy ETF (KMET ).
The actively managed fund doesn’t hold stocks. Its lineup comprises six commodities essential in the production of a slew of clean technology and renewable energy products. On that basis, it can be argued that rebounds by green energy equities could benefit KMET.
How KMET Can Benefit
Around the world, corporations and governments are pledging significant investments in decarbonization. That could drive increased demand for some or all of the commodities represented in KMET’s portfolio.
“More broadly, decarbonization to meet net-zero targets remains a priority of governments around the globe. As a result, measures such as tax credits and subsidies provide long-term support to sustainability as an investment theme,” according to Morgan Stanley research.
Among the metals integral in the production of green energy products is copper. The red metal is a pivotal ingredient in products spanning electric vehicles, solar panels, and more. Those end markets are pertinent to investors considering KMET because the KraneShares ETF currently allocates 29.68% of its weight to the industrial metal. That’s nearly 700 basis points above the weight assigned to the ETF’s second-largest holding — nickel futures.
KMET’s large position in copper futures contracts is important for another reason. Due in part to the new, strong demand from the renewable energy industry, global copper supplies are increasingly tight. Additionally, there have been delays in Chile, the Democratic Republic of Congo, and Peru in terms of bringing new copper mines online. Morgan Stanley Research Commodity Strategist Amy Gower believes such disruptions will remain in place for the foreseeable future.
“A mine closure in Panama and significant guidance downgrades from key producers are two harbingers of accelerated disruption ahead. With futures prices for the physical commodity at historically higher levels than spot prices, investors may look to equity opportunities, and specifically miners with strong prospects for volume growth and operational improvement,” concluded the research firm.
In order of weight, zinc, aluminum, lithium, and cobalt are the other commodities represented in KMET.
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