ETF Prime: Lara Crigger on Clean Energy and ESG Investing

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On this week’s ETF Prime, VettaFi’s Lara Crigger joins host Nate Geraci to discuss the recent resurgence of clean energy ETFs and what’s next for the ESG ETF space overall. Strive’s Vivek Ramaswamy highlights the launch of their U.S. Energy ETF (DRLL) and a “post-ESG” approach to asset management. Dynamic Beta’s Andrew Beer explains the iMGP DBi Managed Futures Strategy ETF (DBMF).

As 2022 markets have gone sideways, traditional energy has had some resurgence, becoming one of the only sectors to consistently put up positive numbers. Meanwhile, as growth stocks took their lumps, ESG ETFs have received increased scrutiny, with many investors questioning what’s in these ETFs and if they actually achieve their ESG goals and provide an appealing value proposition. After being the darlings of 2020, ESG ETFs seemed to fade until recently.

Over three months iShares Global Clean Energy ETF (ICLN) is up over 35%. During the same period, the traditional energy behemoth the Energy Sector Select SPDR ETF (XLE) is down 4%.

Speaking to clean energy’s rebound, Crigger said, “There’s one big, huge driver that’s driving the outperformance here in clean energy, and that’s the Inflation Reduction Act.” The ambitious climate bill allocates $374 billion toward climate and clean energy initiatives, creating a huge growth opportunity for clean energy stocks. Crigger noted that several factors had been holding ESG-focused stocks back.

Before passing the Inflation Reduction Act, congress had displayed ambivalence toward climate policy, and the supply chain issues hampered the ability of clean energy firms to get raw materials. “In 2021, that’s when the supply chain chickens came home to roost. It manifested in difficulties in sourcing raw materials for clean energy stocks, particularly in the U.S. where they source so much of their stuff overseas,” Crigger said, “It was a ripple effect.”

Clean energy grew quickly in 2020, and Crigger thinks that some retracement was inevitable. The Invesco Solar ETF (TAN) up 235% in 2020. Last year it stumbled 25% and is surging 16% this year. Meanwhile, the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) was up 184% in 2020, fell 3% in 2021, and is currently up 1% in 2022. “I think we’re probably going to keep seeing the space rising for a little while because the fundamentals are really strong, but the next big test is the midterm elections,” Crigger noted.

It isn’t just performance that has been up, VettaFi has seen broad engagement with clean energy research throughout the site. Crigger said, “the Alternative Energies Equities category has just been zooming up the ranks of most popular categories this month. So far in August, it’s the fifth most popular ETF category on our platform after several months of being around 40 or 50.”

Traditionally, advisors have seen clean energy and conventional energy stocks as diametrically opposed, but more recently they have both grown to be critical ingredients in a diverse portfolio. Crigger said, “Advisors increasingly don’t see energy as an either/or decision with fossil fuels on one side and clean energy on the other.”

Flows in the past month for clean energy have been positive, but Crigger observed that “it’s not just clean energy ETFs seeing the bump.” Crigger pointed to big numbers being racked by ESG funds with focuses beyond just clean energy with the iShares ESG Aware US Aggregate Bond ETF (EAGG) getting $211 million in flows over the past 30 days and the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) which garnered $100 million in flows. The KraneShares Global Carbon Strategy ETF (KRBN) is also seeing flows.

Strive Pushes for Anti-ESG “Excellence Capitalism”

Next up, Geraci spoke to Strive’s Vivek Ramaswamy, who talked about the launch of their U.S. Energy ETF (DRLL) which has already racked up $100 million in AUM.

“A lot of asset managers over the last half decade have adopted social and political agendas that they foist onto the companies that they invest in,” Ramaswamy said. “They are using the money of everyday citizens to take large positions in public companies and then force those public companies to adopt social and political agendas that most of the everyday citizens, the owners of capital, do not agree in.” Strive’s goal is to use their shares to vote against what he describes as the “demands of the ESG movement.”

Ramaswamy hopes to push against what he sees as rising politicization in the board rooms by voting the proxies they have control over entirely toward profit and what he describes as “excellence capitalism.”

“We thought it was important to bring a different voice to the table in the U.S. energy sector telling these companies that its okay to drill, to frack, to do more of each, to produce more energy, whatever allows you to be more successful in the long-run without these ESG demands,” Ramaswamy told Geraci.

He also pushed back against the idea that Strive was anti-environmental, claiming that the U.S. producing less oil would spur China and Russia to produce more oil, causing methane leaks which are more damaging to the environment than CO2. “We think it will actually have a positive externality for our environment. It’s going to have a positive externality for our culture by creating greater unity in our society.”

Ramaswamy sees Strive as a post-ESG firm. “If you want to go the way of the dodo, maybe you look in the rearview mirror to the ESG era of the last five years.”

Andrew Beer on Managed Futures

Geraci also spoke to Dynamic Beta’s Andrew Beer about the iMGP DBi Managed Futures Strategy ETF (DBMF), which is up over 20% on the year. Beer said, “if you had to use three words to describe what we do, and this is going to sound a little bit strange when you are talking about a liquid alternative ETF, but our approach is simple is better.” Beer sees DBMF as a client-friendly way to get the diversification benefits of managed futures hedge funds in a low-cost way. “You get this really unusual combination of being able to not just match what hedge funds do, but outperform them but in an ETF with low fees and daily liquidity.”

Hedge funds and investment banks have impressive risk engines and quantitative models. Their model looks at what hedge funds are doing and tries to copy it through the platform of managed futures.

Asked why managed futures, Beer noted that they have tremendous flexibility in what they can do. “You can go seamlessly long and short with minimal investment costs,” Beer said. “What managed futures funds are very good at telling you are what really are some of the underlying currents in the market.”

Listen to the Entire Episode of ETF Prime With Lara Crigger:

For more ETF Prime podcast episodes, visit our ETF Prime channel.



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