Adoption of renewable energy sources, including wind and solar, is accelerating around the world. In fact, the International Energy Agency (IEA) is developing a penchant for underestimating demand for renewables. That’s a point to consider when evaluating exchange traded funds such as the KraneShares Electrification Metals ETF (KMET ). The futures-based KMET holds contracts of the metals that are foundational pieces in the renewable energy transition, including aluminum, copper, nickel, zinc, cobalt, and lithium.
KMET components are integral in the production of renewable energy products ranging from electric vehicles to solar panels and beyond. Through growing efforts to combat climate change, KMET could be at the right place at the right time.
“While this mix of rapid adoption and deepening climate change can be seen as appealing to investors with an eye for related opportunities, we should not gloss over recent (investment) issues. The sheer scale of the physical infrastructure that must be revamped, demolished or replaced is almost beyond comprehension,” according to BNP Paribas research.
Time to Make the KMET Call?
KMET’s status as a commodities-based ETF is potentially attractive on multiple levels. In particular, there’s the point that many equities with direct exposure to clean tech and green energy are volatile names. Others are dealing with the issues of cash burn and profitability or lack thereof.
“Many sustainable solutions companies came to market with valuations that were too high. While potentially justifiable over time, for now, the equity market has shifted from a focus on revenue growth to balance sheet strength and a path to profitability. These are challenges for some,” added BNP Paribas.
Additionally, due to its status as a commodities ETF, KMET is an alternative asset. This means it can offer investors performance that isn’t highly correlated to stocks and fixed income. That says KMET can act as a credible portfolio diversification tool while not relying on equities to generate returns. That could be an enviable trait should renewable energy stocks enter bubble territory.
“Of course, every boom has its rush that necessitates many falling by the wayside. It was true in the time of the building of the railroads and later in the dot-com years,” concluded BNP Paribas. “Companies need to adapt to the current new environment by cutting costs, focusing on the most critical development programmes and attracting larger partners.”
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