Is It Time to Buy the Renewable Energy Dip?

Based on a Forbes article, renewable energy stocks “had a relatively tough 2021, declining by about 5% over the year, compared to the S&P 500 which gained almost 27%. While the stocks in our theme have posted relatively healthy revenue growth recently, they have been weighed down by the prospect of multiple interest rate hikes, which has made investors sour on high-growth stocks, and also by some regulatory uncertainty, particularly in the U.S. where negotiations on the Build Back Better bill, which planned spending of over $500 billion for the climate and clean energy, is currently stalled.”

“That being said, this recent underperformance could be a buying opportunity,” the article adds. “Renewable energy companies stand to benefit considerably from the mounting urgency to tackle climate change. Governments worldwide are likely to accelerate regulation favoring green energy alternatives while also investing more in low-carbon infrastructure. The addressable market for renewables is also sizable, as fossil fuels are a multi-trillion dollar industry.”

For prospective ESG investors looking to get climate change exposure specifically, here are two funds to consider: the FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (FEIG) and the FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY).

FEIG seeks investment results that correspond generally to the price and yield performance of the Northern Trust ESG & Climate Investment Grade U.S Corporate Core Index. The fund applies a multi-dimensional ESG framework, incorporating exclusions across ESG controversies and business involvement while seeking to deliver ESG uplift.

At the heart of the strategy is the Northern Trust ESG Vector Score, which is focused on financial materiality and aligned with industry standards, the Sustainability Accounting Standards Board (SASB), and the Tax Force on Climate Related Disclosures (TCFD), integrating not only historic metrics and indicators, but also those that assess how exposed a company may be to future risks and opportunities. It places intentional emphasis on reducing climate transition risk by reducing ISS carbon emissions intensity and improving ISS Carbon Risk Rating.

FEHY seeks investment results that correspond generally to the price and yield performance of the Northern Trust ESG & Climate High Yield U.S Corporate Core Index. FEHY uses the same vector score strategy that FEIG does in order to sift through a vast universe of high-yield options in order to find debt holdings that emphasize climate change while also offering the substantial-yield fixed income that investors crave in today’s low-rate environment.

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