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Former Vice President Joe Biden will be the 46th president of the United States; with that comes an array of investment implications, perhaps none more profound than what’s being reflected in the renewable energy sector.
To be clear, alternative energy equities and the related exchange traded funds gave investors plenty to cheer about in 2019 and in the early stages of 2020 when Biden’s campaign was floundering. However, after it became clear he’d be the Democratic nominee, ETFs such as the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) became tethered to his polling data.
This phenomenon is easy to explain. Although QCLN and rival ETFs performed admirably during President Trump’s time in office and states and municipalities often set their own green energy agendas (see California), there’s belief in the investment community that the federal can materially alter renewable energy policy.
Smartly and to the benefit of QCLN investors, the Biden campaign leveraged that belief with big time promises.
“Biden believes the Green New Deal is a crucial framework for meeting the climate challenges we face,” according to his campaign site. “It powerfully captures two basic truths, which are at the core of his plan: (1) the United States urgently needs to embrace greater ambition on an epic scale to meet the scope of this challenge, and (2) our environment and our economy are completely and totally connected.”
QCLN Methodology Matters
Pure price action confirms QCLN’s leverage to Biden’s polling data and eventual victory. Over the past six months, the ETF surged a jaw-dropping 129.30 percent.
Clearly, there are political benefits with the First Trust fund, but investors would do well to understand the depth offered by QCLN, a trait that can potentially buffer against political disappointment. For example, QCLN is broad. It mandates member firms be involved in advanced materials production, energy intelligence, energy storage and conversion or renewable fuels and generation.
As just one example of its depth, QCLN offers compelling leverage to the electric vehicle theme at a time when established names in that group are delivering astounding returns.
“For example, at the beginning of 2011, consumer discretionary and materials stocks combined accounted for less than 4% of the portfolio,” according to First Trust research. “As the electric vehicle and advanced battery market has grown, the combined weight of the two sectors has increased to 24.5% as of 9/30/2020.”
Another perk offered by QCLN is that it reaches deep into the renewable energy ecosystem. While some rival funds feature exposure to solar panel producers, battery manufacturers or wind power providers, just to name a few, QCLN approaches the industry from the components/technology side, too, potentially providing a better mousetrap for clean energy investors.
Consider the fund’s expansive semiconductor exposure, which could be a plus as the Biden Administration signals a softer tone toward China on trade.
“Semiconductor materials are the basis for solar electric energy systems. Solar power companies, which are also classified as semiconductor stocks, made up most of QCLN’s exposure to the industry as of 9/30/20. In our opinion, QCLN provides investors with exposure to these technologies and innovations behind the clean energy transition,” according to First Trust.
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