- A political shift in the US favors clean energy
- US ETFs with exposure to green energy companies- QCLN and PBW
- The incoming administration will follow a more globalist path
- TAN and PBD are international clean energy ETF products
- Look to buy on weakness as the future dims for fossil fuels
The late Yogi Berra once said, “The future ain’t what it used to be.” The armchair philosopher’s statement was exactly correct when it comes to energy. Over the past four years, the Trump administration advocated for the traditional US energy industry that produces crude oil, natural gas, and coal.
The policy path was nothing new, and the world’s largest economy spent decades trying to achieve energy independence from the Middle East. The discovery of massive natural gas reserves in the Marcellus and Utica shale regions of the US and technological advances in fracking combined with regulatory reforms led to a boom in oil and gas production.
In March 2020, US petroleum output rose to a record 13.1 million barrels per day, surpassing Saudi Arabia and Russia. Natural gas output and technology that liquefies the gas for export created an expanding business where the energy commodity now travels worldwide. In the past, pipeline networks limited natural gas transmission to landlocked areas.
On January 20, 2021, US energy policy will undergo a significant shift towards green energy. On the campaign trail, President-elect Joe Biden made no secret of his plans to decrease fossil fuel production in favor of cleaner and renewable energy sources. His party’s progressive wing wants the incoming commander-in-chief to go even further by banning or dramatically limiting fracking and hydrocarbon production. Traditional energy companies have seen their shares depreciate over the past years. The recent recovery in the leading oil and natural gas company’s shares is likely to be nothing more than a dead cat bounce for the sector. Alternative energy is the path of the future.
A political shift in the US favors clean energy
The incoming President’s political party currently has a majority in the House of Representatives. The Senate’s majority will depend on the January 5 pair of runoff elections in Georgia. If Democrats win both contests, Vice President-elect Harris will have the deciding vote, throwing the majority into the hands of Democrats and shifting the majority leader from Kentucky’s Mitch McConnell to New York’s Chuck Schumer.
The incoming President’s agenda would likely sail through both houses of Congress without the need for compromise, creating an opportunity for far more aggressive environmental initiatives.
Even if Republicans retain control of the Senate, the Biden administration will fulfill its pledge to work towards a cleaner environment to address climate change. The US will rejoin the Paris climate accords, and a stricter approach to regulations will impact energy production.
Limits or bans on fracking could cause crude oil and natural gas output to plunge. While a shift in US energy policy could hand pricing influence back to OPEC, Russia, and other world producers, it would bolster alternative energy production in the US and worldwide. Traditional energy’s loss will likely become alternative energy’s gain.
US ETFs with exposure to green energy companies- QCLN and PBW
The prospects for further gains in US clean energy companies are looking bright. A green approach to the environment could create green results for investors over the coming years.
The fund summary and top holdings of the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) include:
Source: Yahoo Finance
QCLN has net assets of $756.57 million, trades an average of 502,160 shares each day, and charges a 0.60% expense ratio.
The chart shows that QCLN reached a low of $16.14 in March 2020 as risk-off conditions hit markets. Since then, it more than quadrupled to a high of $66.15 in November and was trading at the $61.33 level at the end of last week. The shares held in QCLN are likely to continue to thrive in an environment where US energy policy shifts from traditional energy sources to green alternatives.
The fund summary and top holdings of the Invesco WilderHill Clean Energy ETF product (PBW) include:
Source: Yahoo Finance
PBW has net assets of $875.91 million, trades an average of 429,287 shares each day, and charges a 0.70% expense ratio.
PBW reached a low of $22.20 this March and rose to a high of $96.73 in November as the shares also more than quadrupled. At the $89 level on December 4, the path of least resistance for PBW shares remains higher as clean energy companies claim a rising market share in the United States.
The incoming administration will follow a more globalist path
In addition to a significant shift in energy policy under the Biden administration, a change from “American First” to a more globalist approach to foreign policy and rejoining the Paris accords will put climate change and green energy high up on the list of global priorities.
President-elect Biden has committed to a green agenda. Another set of victories in Georgia would only serve to push the incoming President further to the left when it comes to adopting alternative energy sources and discarding or significantly restricting traditional energy production via limits or bans on fracking. A more globalist and green path would support foreign alternative energy companies.
TAN and PBD are international clean energy ETF products
The fund summary and top holdings of the Invesco Solar ETF (TAN) include:
Source: Yahoo Finance
TAN has net assets of $1.80 billion, trades an average of over 1.7 million shares each day, and charges a 0.71% expense ratio.
TAN fell to a low of $21.14 this March and rose to a high of $88.35 in November as the shares also more than quadrupled. At the $81.42 level on December 4, the solar ETF product continues to display a bullish trend.
The fund summary and top holdings of the Invesco Global Clean Energy ETF product (PBD) include:
Source: Yahoo Finance
PBD has net assets of $124.18 million, trades an average of 102,203 shares each day, and charges a 0.75% expense ratio.
After falling to a low of $9.70 per share this March, PBD rose to a high of $30.88 in November as the shares more than tripled. At the $29.59 level on December 4, the trend remains bullish. TAN and PBD are global products that hold mostly non-US companies.
Look to buy on weakness as the future dims for fossil fuels
The green wave in energy is likely to continue for the coming years. I would be a buyer of QCLN, PBW, TAN, and PBD on any significant corrections. All clean energy products are likely to see earnings growth as the US and world shift from traditional coal, oil, and gas energy sources to alternative energies that will eventually dominate powering our planet.
The US is the world’s leading economy. A dramatic shift in US energy policy is a significant event that will continue to support the new breed of energy producers. As Yogi Berra would have said, “the future for hydrocarbons ain’t what it used to be.”
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USO shares were trading at $32.02 per share on Thursday morning, up $0.68 (+2.17%). Year-to-date, USO has declined -68.75%, versus a 15.39% rise in the benchmark S&P 500 index during the same period.
USO shares were trading at $32.56 per share on Thursday morning, up $1.22 (+3.89%). Year-to-date, USO has declined -68.23%, versus a 15.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
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