Despite Underperformance, Clean Energy ETFs Still Attract Heavy Inflows

Clean energy sector-related exchange traded funds have taken a hit this year, but ETF investors remain undaunted, funneling even more money into the socially responsible asset category.

Solar photovoltaic panel and wind turbine stocks are underperforming the broader market this year after surging in 2020, and the uncertainty over the Federal Reserve’s interest rate outlook in the face of rising inflation pressures has also weighed on high-flying growth names.

Consequently, ETFs that track renewable energy indices have suffered double-digit declines this year, but ETF investors continued to throw $6.2 billion into green ETFs this year, the Wall Street Journal reports. The year-to-date total is already on pace to eclipse last year’s record $7.2 billion.

“It’s an area where we see continuous demand,” Ari Rajendra, a senior director of strategy and volatility indexes at S&P Dow Jones Indices, told the WSJ.

For example, at BlackRock, the world’s largest asset manager, clean energy funds saw $2.7 billion in inflows in 2021 and $1 billion into a European clean energy fund, according to FactSet data.

The deluge in new inflows was so high that S&P Indices had to expand its clean energy benchmark or risk having too much money in mostly small, hard-to-trade companies. Rajendra noted that the intense demand from investors supported the index’s revamp to 82 stocks from just 30 for a clean energy benchmark used by BlackRock.

Market observers argue that clean energy is a long-term trend that is not going away anytime soon. Ross Gerber, chief executive of Gerber Kawasaki Wealth & Investment Management, believes that renewable energy stocks, from solar panel makers to manufacturers of alternative batteries, could transform transportation and other facets of everyday life.

“The more speculative the stock, the higher the valuation. But in this market, people care more about fantasy than reality,” Gerber told the WSJ. “So with solar, you have a little bit of the fantasy in there, too.”

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