The latest infrastructure bill passed in the fall of 2021 contains a number of policies and high-profile government spending earmarks certain to help shape the economic landscape in the coming years. These mega-trends are already influencing how business decision-makers are implementing forward-looking strategies. Savvy investors are responding in-kind.
Of the many trends and opportunities created by this legislation, research conducted by Equity Armor Investments (EAI) shows the โGreen Trendโ to be a particularly attractive source of investment opportunity. The current administrationโs stance on clean energy will likely generate a sustained tailwind for years to come. For example, energy efficiency and a reduction in carbon emissions are major themes in the bill that many readers are likely familiar with. Drilling down further into the legislation, another major investment opportunity is the push to make the average American home and vehicle more eco-friendly.
Unfortunately, investing in many of these initiatives is not always simple. Several of the businesses in this space are new and without much historical background to form an investment thesis. Alternatively, in the case of established businesses, many firms are making a foray into a new business line with new technologies. The stock prices of these companies can be volatile as they grow unfamiliar business lines. Additionally, price discovery can be messy as the investment community begins to recognize and allocate to these themes.
Additionally, some of the ETFs that claim to offer investors exposure to these firms are simply a basket of stocks. One or two bad apples can ruin the bunch and drag returns lower. For example, look no further than single-name CHIP stocks and the performance of CHIP-linked ETFs.
To access this new โGreenโ push, EAI along with Halo Investing have created several structured notes that seek to identify what we believe to be the best-in-class of the new themes. These opportunities offer a more thoughtful and risk-managed way to implement an investment in exciting but uncertain sectors.
The first in this series concerns the homes we live in and the vehicles we drive.
The Growing Popularity of Smart Homes
Soaring energy prices have been top-of-mind for most households over the past couple of years. Despite access to more energy-efficient devices than ever before, energy providers are increasingly asking consumers to conserve energy. The work-from-home trend further necessitates households moving toward greater efficiency.
According to some estimates, the global smart-home market was around $80 billion in 2019 and is expected to reach over $600 billion by 2026. President Biden has set a target to achieve net-zero emissions by no later than 2050, and plans to upgrade four million buildings and weatherize two million homes over the next four years.
Tax refunds and rebates for installing solar panels and weatherizing existing homes are already being rolled out en masse. This large undertaking is not without critics, but as the saying goes: โyou canโt fight city hall.โ
To take advantage of this thesis, we have uncovered three stocks which we believe have the potential to benefit from the push toward home and energy efficiency.
The first is First Solar (FSLR), which seeks to benefit from clean energy and tax credits available for the installation of solar panels that will increasingly power the modern home. In some states, captured energy can be sold back to local utilities, helping offset some installation costs.
Owens Corning (OC) is another entity that looks positioned to take advantage of smart homes and energy efficiency. Owens Corning, a leader in home insulation solutions, can help homeowners find optimal home energy patterns. Itโs estimated that over 40% of the heat and cool air in most U.S. homes is lost through the ceiling and another 20% through poorly fitted windows and a general lack of insulation in walls.
Lastly, SunRun (RUN) engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It is the leading residential solar panel company in the US, with roughly 13% of the residential market share as of 2022. As solar input costs decrease and government incentives increase, SunRun is poised to capture a rising tide with its direct-to-consumer sales processes and comprehensive services.
These names represent an interesting opportunity at the intersection of modern technology and consumer demand for smart devices.
Structured notes can be an efficient way to tap into this investment opportunity with an added layer of downside risk protection.
Note Example Ideas
The following structured note ideas are presented for illustrative purposes only. Please reach out to discuss current pricing and customizable note terms.
Growth with Heavy Multiplier
Rationale:
By carrying 3.65x upside multiplication, this bullish note is intended to leverage the returns in these stocks significantly over the next two years. It also is protected on the downside with -30% soft barrier protection.
For illustrative purposes only. Indicative pricing as of 2/26/2023. Changes to terms and pricing should be expected. The information does not constitute a recommendation from Halo Investing. There is no guarantee that these objectives will be met.
Income with Deep Buffer
Rationale:
This protective note is intended to generate equity-like returns with fixed coupons but also protect against downside risk with a -30% hard buffer. Even if one of these companies was to go bankrupt, coupons would still be obligated. With this structure, the maximum risk of loss is approximately -70% + 36% = -34%.
For illustrative purposes only. Indicative pricing as of 2/26/2023. Changes to terms and pricing should be expected. The information does not constitute a recommendation from Halo Investing. There is no guarantee that these objectives will be met.
Income with Bullish Slant
Rationale:
This moderately bullish note generates strong fixed coupon returns at 21%. It would not capture appreciation in a strong upward movement for these stocks, however, if a 21% return is satisfactory or if an investor has a prioritization for increasing income yield, this structured note may help achieve those goals.
For illustrative purposes only. Indicative pricing as of 2/26/2023. Changes to terms and pricing should be expected. The information does not constitute a recommendation from Halo Investing. There is no guarantee that these objectives will be met.
Absolute for Soft Landing?
Rationale:
This neutral-leaning note can invert negative returns at maturity from 0% to -40%, potentially turning a negative result into a positive. In positive scenarios, the lesser of the three performers is still multiplied by 2.67x. Given its 18-month time frame, this could be a strong candidate for investors concerned about recession risk, but who also would like to benefit from a โsoft landing.โ
For illustrative purposes only. Indicative pricing as of 2/26/2023. Changes to terms and pricing should be expected. The information does not constitute a recommendation from Halo Investing. There is no guarantee that these objectives will be met.
The information provided here is neither tax nor legal advice and should not be relied on as such. Investment involves risk including possible loss of principal.
FOR INSTITUTIONAL, FINANCIAL PROFESSIONAL, PROFESSIONAL INVESTORS, AND WHOLESALE INVESTOR USE ONLY. This communication should not be distributed, in its current form, to end-investors, and it is for investment professionals only.
The material is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.
It is not intended to be a forecast, research or investment advice, and is not a recommendation, or an offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.
Past performance is not a reliable indicator of current or future results.
