ESG Flows Drive Clean Energy to Fresh Highs

The ESG theme has taken the capital markets by storm in 2020. Fund flows into this space have been relentless, helping to drive the clean energy sector to fresh highs. In the first half of 2020, 23-new exchange-traded funds were launched under the ESG umbrella. By the end of the Q3, ESG index funds hit $250 billion in value. The ESG umbrella focuses on many different areas and has flourished during the pandemic. With a vaccine on the horizon, the question for investors is whether this sector will remain sustainable.

What is ESG and ESG Investing

The term ESG stands for:

• Environmental
• Social
• Governance,

The term brings to mind concepts like climate change, diversity and inclusion, and resource scarcity. While these are forms of ESG, it also covers social practices including labor and talent management as well as data security and product safety. It includes employee experience, executive pay, and ethics. There is a wide divide amongst stakeholders on what the term means and how to communicate and manage the concept.

ESG investing appears to be a derivative of socially responsible investing (SRI) which has been in existence for decades. While profits have always been considered the “mothers milk” of stocks, modern investors have realized that shortchanging stakeholders is a high price for society to pay. A company’s stakeholders include its employees, customers, suppliers, as well as the environment, which play a key role in the functioning of the corporation.

There is a fine line between ESG investing and SRI. ESG investors actively look for companies that show robust environmental, social, or governance attributes. SRI focuses on excluding industries that have failed to show compliance in socially responsible areas. ESG provides broader flexibility into the practices of specific companies and the different management attributes that make up a corporate initiative.

Inflows Into ESG Have Been Impressive

Inflows to ESG have been robust. ESG ETFs surged to $22 billion in the first half of 2020 which was more than 3X the 2019 total, according to Bloomberg. One of the issues that regulators face is that there is no clear definition of what constitutes ESG.

The Concept is Here to Stay

Some corporate actions show me that ESG is here to stay. Stakeholders at public companies are getting assurances from management that their contributions will remain an important aspect of management’s focus. In 2020, Starbucks Corp. announced that the company would mandate antibias training for executives and tie their compensation to increasing minority representation in its workforce. The target of their diversity and inclusion mandate is to have 30% of corporate employees to be minorities by 2025. While profits at any level are key, it’s hard to imagine that an executive will allow their bonus to be eroded by failing to meet a corporate ESG mandate.

The Best Asset Now Process

I have mentioned this before and I have not wavered. I like to use a BAN strategy (Best Asset Now) to find leading sectors. Two ETFs have largely outperformed the rest that conforms to the ESG concept. Each of these ETFs represents sectors that have shown leadership and are currently two of the top-5 best performing ETFs in 2020. These ETFs have generated bullish chart patterns that point to much higher prices following their recent breakouts.

There is a reason to be bullish. President-elect Joe Biden named former Secretary of State John Kerry to lead his administration’s efforts on climate change. Kerry will be the “climate czar” and will be in charge of coordinating programs that are expected to stretch across multiple agencies. This could include executive orders issued by the new President-Elect that will provide avenues beyond Congress to advance climate priorities. This is positive news for clean energy ETFs. If you are a stock trader, these are the BAN ETFs to look at which will outperform.

*source – https://etfdb.com/compare/highest-ytd-returns/

TAN Hits Fresh Highs

The Invesco Exchange-Traded Fund Solar ETF accelerated to multi-year highs in November and is poised to test resistance near the 2011 highs at $91.70. This would add another 11% to its already robust 162% return in 2020. While prices could temporarily consolidate near this $92, a close above this level would lead to a test of the 2010 highs at $115. A close above $115 could lead to a test of the all-time highs near $307. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

*source Tradingview

PBW Invesco Exchange-Traded Wilderhill Clean Energy ETF

Has broken out and is poised to test the 2008 highs near $119.50. Support is seen near the 10-week moving average of $71.70. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

*source tradingview

As we move towards 2021, pay attention to how the markets react to the continued recovery efforts and global banking/policy issues.  A variety of sectors could become a very profitable sector for traders. We can help you find and identify great trading opportunities so visit www.TheTechnicalTraders.com to learn about my exciting ”Best Asset Now” strategy and indicators. Sign up for my daily pre-market video reports that walk you through the charts of all the major asset classes every morning.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

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NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  We are not registered financial advisors and provide our research for educational and informational purposes only.