Forget oil shares. I think renewable energy stocks could be millionaire-makers!

Renewable energy stocks are in a purple patch. Here’s how one Fool is playing the trend.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Windmills for electric power production.

Image source: Getty Images

It doesn’t seem over-the-top to say that renewable energy looks set to be one of the big investing themes of the next decade and beyond. In fact, I think stocks in this space have the potential to make retail investors very rich in over time. Millionaires, even.

Today, I’m looking at how Foolish investors might position themselves to reap the rewards.

Renewable energy goes mainstream

Thanks to concerns over global warming, the drive towards greener sources of energy has increased exponentially over the last few years. The pace of demand is only likely to accelerate further following Joe Biden’s recent US election win. After all, the Democrat made a commitment to clean energy a huge part of his campaign to secure the White House.

In sharp contrast to all this, oil stocks such as BP and Royal Dutch Shell have been out of favour for most of 2020 as a result of the pandemic. The FTSE 100 tankers have seen their share prices pummeled as a consequence of the huge reduction in travel hitting demand for oil. Junior oil stocks have fared even worse.

Now, I don’t doubt we could see the price of the slippery stuff recover strongly as some form of normality returns in 2021 and demand increases. Even so, I can’t help but think investors will miss out on bigger gains by remaining loyal to oil stocks. As much as BP and Shell are trying to improve their green credentials by reducing their carbon footprints, no one should assume this move will be easy or cheap.

No, I’m looking for companies that are already making strides in the renewable energy space. 

Tap into the trend

UK retail investors certainly aren’t short of options when it comes to playing the theme.

Naturally, they could buy shares in individual companies. FTSE 100 member and catalyst system supplier Johnson Matthey is arguably one example. It has an interest in battery materials and hydrogen-related technology. Utility firm SSE plans to triple its renewable energy generation within the next 10 years. Lower down the market, there’s fuel-cell tech business Ceres Power Holdings and clean-fuel firm ITM Power

An alternative to the above would be to buy an investment trust focused on this space. FTSE 250-listed Renewables Infrastructure Group owns wind and solar farms, as does Greencoat Renewables.

Cheap exposure

My option of choice however, is the geographically-diversified iShares Global Clean Energy UCITS ETF.

With a cheap ongoing charge relative to ‘active’ equivalents (0.65%), this exchange-traded fund has holdings in companies such as US hot stock Plug Power, home energy storage firm Enphase Energy and New Zealand electricity generator Meridian Energy.

A concentrated portfolio of 31 holdings could mean a volatile ride for holders. But owning this fund over stocks in specific renewable energy companies whose technologies aren’t necessarily proven feels far less risky. That said, returns should be turbocharged if this relatively small portfolio performs. Given the nailed-on industry tailwinds, I think the odds are in my favour.

As one might expect, the recent performance of the fund has been superb. In the year to date, iShares Global Clean Energy has almost doubled in value! I’m not expecting gains like this too often but I can’t see an end to this purple patch just yet.

I’m backing up the truck whenever I can.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Paul Summers owns shares in iShares Global Clean Energy UCITS ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

Young female analyst working at her desk in the office
Investing Articles

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Up 300%, is the Hurricane Energy share price an opportunity too good to miss?

This Fool looks at why the Hurricane Energy share price has soared in the past 12 months. Should he buy…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

The BT share price crashes 20% in a month. Buy now?

The BT share price has crashed by almost a fifth since coming close to £2 on 12 July. After this…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How I’d invest £1,000 in growth shares today to target £5,000 in a decade

Our writer reckons he could do well by choosing the right growth shares today and holding them in his portfolio…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How passive income from stocks can speed up early retirement

By investing patiently over the years, buying quality shares has given me enough passive income to retire 10 or even…

Read more »