Everything Hot Is ‘Unwinding’ in $21 Billion of Clean-Power ETFs
(Bloomberg) -- One of the hottest trades in the $5.9 trillion U.S. ETF market is cooling fast.
The $20.7 billion clean-energy sector has been bleeding cash, with one prominent green product -- the $3.7 billion Invesco Solar exchange-traded fund (U.S. ticker: TAN) -- on course for a seventh week of investor exits, equaling the longest run of outflows in its 13-year history.
The biggest fund in the space, the $5.7 billion iShares Global Clean Energy ETF (ICLN), is down 23% from its January peak.
It all points to the hot-money crowd stepping back from an industry that boomed on bets U.S. President Joe Biden will introduce game-changing environmental policies in the world’s largest economy.
“You have a bunch of momentum and speculative buyers that have come in and bought everything that was hot,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, which tracks daily gyrations in the market. “Now you’re seeing everything that was hot start to unwind.”
The sector’s woes come after the $1.5 trillion rout in the broader tech industry, spurred by higher yields and investors rotating toward cyclical shares that trade with cheaper valuations.
That selloff was gathering fresh pace in Friday trading amid rising U.S. borrowing costs -- a gut-check for those riding the everything rally.
As TAN withdrawals continue, the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) is on pace for its first month of outflows in almost a year. ICLN has fared better, though it still suffered exits in each of the past three weeks.
That’s a far cry from the start of the year, when they all posted record inflows in January.
“Many of these companies aren’t profitable right now, so it’s a bit of a longer duration investment,” said Michael Arone, chief investment strategist for the U.S. SPDR ETF business at State Street Global Advisors. “They have high growth prospects in the future and as interest rates rise, the value of those earnings declines.”
That’s on show under the hood of the Invesco solar fund. For instance, Enphase Energy Inc. and SolarEdge Technologies Inc. -- its largest holdings -- have each slumped more than 19% from their January highs.
TAN surged by almost a fifth in the first six weeks of 2021, rising about four times faster than the S&P 500 Index. Since then the benchmark U.S. equity gauge is up 4.8%, while TAN is down 3.9% for the year.
All the same, to clean-energy bulls, the poor run of performance will likely be viewed as a blip.
The policy backdrop looks supportive, with Biden promising to completely decarbonize the U.S. power industry by 2035. Meanwhile, shifting social and corporate attitudes are rapidly pushing clean energy up the agenda.
“The short-term oriented hot money crowd has picked up their marbles and is going to play elsewhere,” said Ben Johnson, Morningstar Inc.’s global director of ETF research. “The amount of money you see coming and going isn’t necessarily coming from the buy-and-hold crowd.”
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