The hot corner of ESG investing is cooling down quickly and losing money


    (Bloomberg) – After an outstanding 2020, the record boom in clean energy funds is quickly giving way to bankruptcy.

    Investors are pulling cash out of the sector at the fastest pace since the start of the year, while two of the largest exchange-traded funds tracking the industry – the iShares Global Clean Energy ETF (ICLN) and the Invesco Solar ETF (TAN) – each fell at least 24% a year 2021. Around USD 154 million has been withdrawn from clean energy ETFs since the beginning of May.

    Thanks for putting the pressure on big tech stocks. Funds with higher environmental, social and governance standards have long benefited from significant holdings in huge growth companies. Now, a post-pandemic economic recovery is triggering a rotation to cheaper stocks, and the benefits quickly turn into disadvantages.

    «They had such a huge success in 2020, but like many of those momentum and growth funds, they returned a large portion of their profits in 2021,» said Mohit Bajaj, director of ETFs at WallachBeth Capital. «Now we’re seeing a rotation of these into more value-oriented names.»

    Further details on President Joe Biden’s $ 2.25 trillion infrastructure plan were not received with the enthusiasm many analysts had hoped for. In addition, several clean energy funds were hit late last month after Enphase Energy Inc. – a popular holding company – reported semiconductor shortages and supply chain issues.

    «A return to more than $ 5 billion in clean energy ETF inflows in January may require a recovery in performance,» Adeline Diab, ESG analyst at Bloomberg Intelligence, wrote in a statement Tuesday. «Rising interest rates, increasing competition and tight supply chains have slowed the flow dynamics.»

    Net worth in this category has declined for the last three months in a row, and now stands at $ 18.1 billion. That’s less than the late January high of $ 22.3 billion.

    Other large clean energy ETFs like the First Trust NASDAQ Clean Edge Green Energy Fund Index (QCLN) and Invesco Wilderhill Clean Energy ETF (PBW) are also experiencing an outflow of more than 18% this year.

    With their heavy tech exposures, the pain clean energy funds face may only be just beginning. JPMorgan Chase & Co. strategist Marko Kolanovic warned last week that large allocations in growth and ESG strategies could leave money managers vulnerable to inflation. As the data continues to point to higher prices for goods and services, he’ll bet investors will be forced to move from low volatility games to value stocks.

    «As money moves away from these emerging growth themes and into the more economically sensitive areas of the market, clean tech becomes a source of funding,» said Dan Russo, portfolio manager at Potomac Fund Management.

    How to contact the author of this story:
    Claire Ballentine in New York [email protected]

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