ICLN: An Attractively Valued Bet On A Well-Positioned Theme

Summary

• ICLN tracks the growing clean energy trend, which looks highly likely to continue gathering steam.
• The fund offers diversified international exposure, without sacrificing relevance to its target theme.
• ICLN looks to be an attractively valued product, especially given its growth focus.
• I use a 'trinity' approach to thematic investing to determine its suitability for inclusion in a portfolio.

A great framework for looking at buying into themes within the ETF ecosphere is the "trinity" approach of thematic investing. This entails asking three questions of a given thematic ETF - the answers of which should go a long way towards indicating whether or not that product would be a good fit for your portfolio.

Here, I examine the iShares Global Clean Energy ETF (NASDAQ:ICLN) using this approach.

ICLN is an extremely interesting, ESG-style vehicle which aims to latch onto the growing global trend towards the increased use of clean energy sources by tracking the S&P Global Clean Energy Index. ICLN is up 25.68% year to date, and has a very reasonable PE ratio, among other valuation metrics, for a product of its ilk.

Let's therefore have look at these three questions, and see whether ICLN is worth considering for inclusion in your portfolio at its current price and valuation.

Is The Theme A Winner?

One of the most important questions you can ask when prospecting for a thematic vehicle to include in your portfolio is whether the theme you are going after is actually a growing, medium- to long-term trend (be it secular, cyclical or structural), or if it merely represents the flavor of the month in the financial press. Identifying and investing in a growing theme early on can be a huge boon to any portfolio, enabling those invested in it to consistently compound capital over the years as the theme proceeds to flourish.

Unfortunately, ETF heaven is chock-full of past attempts to capture a theme that didn't work out quite as successfully as the issuers or investors had planned. A prime example of this was Spirited Funds/ETFMG Whiskey & Spirits ETF (WSKY), which, despite its catchy ticker and appealing theme, was wound up after less than two years

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.