Linda Zhang, chief executive of ETF-focused asset manager Purview Investments, said there is a strong correlation between market performance and exposure to China, where government support for renewable energy has been growing after solar subsidies stalled in mid-2018.
“Country exposure matters, especially U.S. and China exposure mattered a lot in the last three months,” Ms. Zhang said.
The MSCI China Index (.MSCICN), which tracks mid- and large-cap companies in China, is up 12% for the year and 7.6% in the past three months, according to FactSet. The index is still down 18% over the past 12 months. In the U.S., the S&P 500 (.SPX) is up 8.7% this year and up 2.9% over the past 12 months, according to FactSet.
The top five renewable energy ETFs by market capitalization are outperforming both indexes with a gain of 17% on average for the year and 8.9% over the past three months, FactSet market data show. They are up 4.1% over the past 12 months.
In addition to the lift from China, renewable energy ETFs and environmental, social and governance investing are benefiting from increased risk taking among investors in general and a growing focus on climate change, analysts say.
“To start the year, risk taking has been rewarded in a way that was not the case in the second half of 2018 and this has helped many of these ESG and clean energy oriented ETFs,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.
Many of these ETFs hold technology shares and other more volatile stocks that “perform better in a risk-on environment,” Mr. Rosenbluth said. “If the trend that kicked off 2019 continues, these ETFs could go along for the ride, potentially sparking further interest.”
Top 5 renewable energy ETFs by market cap
1. Invesco Solar ETF (TAN) up 24% for the year and 12% for the past three months. Market cap: $278 million
2. iShares Global Clean Energy ETF (ICLN) up 15% for the year and 12% for the past three months. Market cap: $186 million
3. Invesco WilderHill Clean Energy ETF (PBW) up 19% for the year and 5.8% for the past three months. Market cap: $108 million
4. First Trust Nasdaq Clean Edge Green Energy ETF (QCLN) up 13% for the year and 3.2% for the past three months. Market cap: $93 million
5. VanEck Vectors Global Alternative Energy ETF (GEX) up 13% for the year and 11% for the past three months. Market cap: $89 million
The leader among the renewable energy ETFs is the Invesco Solar ETF, which invests in global solar companies such as First Solar Inc. (FSLR), SolarEdge Technologies Inc. (SEDG) and Xinyi Energy Holdings Ltd. (XNYH). The fund has risen 24% this year and 12% over the past three months, according to FactSet.
The Invesco Solar ETF gathered $315 million in net inflows last year to earn 86% of net inflows among all clean-energy ETFs listed in the U.S., according to research provider ETFGI. Overall, clean-energy ETFs had record inflows of $367 million in 2018, up 28% from 2017.
“What we are seeing is that concern about the environment and the world is clearly growing,” said Deborah Fuhr, managing partner and founder at ETFGI.
After North America, the Invesco Solar ETF’s largest market exposure is the Asia-Pacific region at 29%, according to FactSet, and 13% of its top 10 holdings are in Chinese companies, such as Xinyi and GCL-Poly Energy Holdings Ltd. (GCPEF). Nine of its top 10 holdings are up for the year and the past three months, and the fund’s top Chinese holdings have climbed 32% on average this year, compared to 13% among its U.S. holdings, according to FactSet.
At 0.6%, the First Trust Nasdaq Clean Edge Energy Index Fund has the least exposure to Asia-Pacific and is the worst performer among the top five renewable energy ETFs. The fund is up 13% for the year and 3.2% over the past three months.
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