WisdomTree has expanded its range of thematic ETFs in Europe with the launch of a fund that invests in companies linked to energy storage technologies, particularly batteries.
Christopher Gannatti, Head of Research, Europe, WisdomTree.
The WisdomTree Battery Solutions UCITS ETF has listed on the London Stock Exchange in US dollars (VOLT LN) and pound sterling (CHRG LN) and is due to roll out on Xetra (W1TA GY) and Borsa Italiana (VOLT IM) in euros later this week.
The fund tracks the proprietary WisdomTree Battery Solutions Index, developed in partnership with Edinburgh-based energy research consultants Wood Mackenzie.
The index selects its constituents from a universe of developed and emerging market stocks with market capitalizations greater than $250 million and average daily trading values above $1m.
It aims to capture opportunities across the battery value chain by using market intelligence insights from Wood Mackenzie to identify and classify companies according to four distinct categories: raw materials, manufacturing, enablers (correlated technologies and complementary solutions), and emerging technologies.
Each company is assigned an ‘Intensity Rating’ based on its perceived involvement across the value chain. Intensity Ratings are derived from the firm’s revenue exposure to 37 relevant sub-sectors, while the importance of each sub-sector to the value chain is also taken into account based on size, exposure, and growth. Each company is also assigned a ‘Composite Risk Score’ based on the firm’s exposure to quality and momentum factors.
Firms that fall in the bottom 20% when ranked by either Intensity Rating or Composite Risk score will be removed from the selection.
Each of the four categories is equally weighted and then adjusted to increase the weight of categories that contain sub-sectors with higher average Intensity Ratings. Within each category, stocks are weighted to favour firms with higher Intensity Ratings and Composite Risk Scores. Country exposure is capped at 25% (apart from the US which is capped at 50%) and individual stocks are capped at 3.5%.
Stocks from the US (24.3%), China (24.0%), and Japan (19.1%) presently hold the highest weight in the index, followed by Germany (5.4%) and Israel (4.0%). Materials (35.3%) and industrials (33.9%) each account for roughly a third of the index weight with lesser exposure to information technology (16.2%) and consumer discretionary (6.9%) sectors.
According to WisdomTree, increasing demand for energy storage solutions and developments in battery technologies represent an emerging megatrend, fuelled by global attention to climate change, a shift to mobile devices, and rapidly evolving technologies offering new possibilities.
The firm believes the demand for electric vehicles is likely to be the main catalyst for battery demand. Batteries, which are essential for electric vehicles, are increasingly being coupled with various forms of renewable power generation such as wind and solar to smooth production. Wood Mackenzie forecasts suggest battery-powered cars are likely to grow ten-fold by 2040, with close to half of all passenger car sales being electric by 2040.
Christopher Gannatti, Head of Research, Europe, WisdomTree, commented, “A combination of environmental, policy and technology factors are driving an essential energy transformation, as we switch away from fossil fuels into clean, renewable sources of energy. Power and road transport, which together contributed around two-thirds of carbon emissions in 2017, are a clear area of focus for the energy transition. Batteries could play a key role in reducing the climate problem alongside the decarbonization policies that have already been rolled out. Lowering carbon emissions is critical if we are to limit temperature increase to 1.5°C as outlined by the United Nations Paris Agreement.”
David Linden, Director at Wood Mackenzie, added, “This decade will be key for batteries. As they become cheaper and their deployment accelerates, they will advance the energy transition. Our integrated understanding of the constantly evolving battery value chain allows us to identify the sectors best positioned to take advantage of this opportunity”
Rafi Aviav, Head of Product Development, Capital Markets and Technology, Europe, WisdomTree, said, “The combined expertise of WisdomTree and Wood Mackenzie brings investors intelligent access to a high growth, emerging sector. Batteries and, more broadly, energy storage solutions, are driving mobile computing, electric vehicles and more developments enabling new efficiencies and possibilities across industries. VOLT offers uniquely refined access to this investment opportunity through intelligent allocation across the value-chain, tilting towards the highest growth sectors.”
The ETF comes with an expense ratio of 0.40%.
VOLT is WisdomTree’s third thematic megatrend ETF in Europe after funds tracking AI and cloud computing stocks. The WisdomTree Artificial Intelligence UCITS ETF (WTAI LN), which launched in December 2018, tracks the Nasdaq CTA Artificial Intelligence Index, providing exposure to companies globally that stand to gain the most from increasing adoption of artificial intelligence (AI) technology. The WisdomTree Cloud Computing UCITS ETF (WCLD LN), which launched in September 2019, is linked to the BVP Nasdaq Emerging Cloud Index and targets rapidly growing cloud computing companies.