The Green decade has begun [ETF trades setup ICLN/SPY]
A detailed analysis on the subject of the expected green revolution in this decade.
I won't dwell into the chart technicals' instead I will focus my attention on the fundamentals, in three key bullet points:
A) Firstly, I chose ICLN since it's by far the largest by volume and assets, green ETF. Interestingly it has had quite an abysmal performance relative to SPY for the past decade, as well as an appallingly negative Sharpe.
Since 2018, it's performance has picked up and relatively stabilized wrt the SPX. Despite of the negative dividend yield carry of about -1%, ICLN (0.62%) vs SPY(1.59%), it's negligible compared to the price appreciation component of these ETFs.
Moreover, it seems that the pandemic has been a positive catalyst overall, since it increased the odds of Biden winning the U.S. elections, and we all know the Democrats stance on environmental policy as compared to Trumps non-existent one. The Biden-Harris odds realized last week, which was followed by a bull-run. Considering the current pace of the momentum channel, ICLN is undoubtedly in a parabolic formation.
B) Another indication, is the price appreciation of precious metals used in production of sustainable energy products, such as lithium, palladium, nickel to name a few. Relative to gold, these metals generally have a positive market beta since their demand is largely influenced by economic growth, especially from some of the developing countries in the past decade(India, Indonesia, China etc).
Palladium:
Lithium ETF[LIT]:
Nickel:
Essentially, the price appreciation of these metals certainly is an indication of the growing demand, and therein the growth potential of the whole renewables sector, also an indication of the ecologically friendly premium corporates and governments are willing to pay. Naturally, if the cost of inputs becomes too high, implying a demand gap, but also lack of supply as it becomes more difficult to extract these metals, which in fact might produce more pollutants than the gain from utilizing these metals in developing sustainable products. However, it seems that this discussion so far is not in the news headlines, so therefore the current trend isn't threatened for now.
C) It is important to distinguish between the types of market participants wrt to their portfolio preferences, biases and why they are willing to pay for an ecological and/or CSR premiums. The general consensus is that CSR investments lately have outperformed sin stocks on a relative basis. One of the explanation is CSR branding, and the idea that consumers will pay a premium to be associated with such a brand, therefore the stocks that score highly on the ESG scale, are simply better investments despite their high multiples.
ESG/SPY:
I think in general, it boils down to three types of market participants in ESG assets:
1. Investors that genuinely care for the environment, and are extremely elastic in terms of the ESG premiums they pay.
2. Investors that are seeking "warm glow", i.e own these assets for the sake of feeling better about their choices. In this group I'd add investors that hold these assets for their reputational benefits.
3. Traders looking to profit off the current momentum channel, without any views on the environmental issues that we're facing.
In summary, it's clear that the sector principally benefits from governmental subsidies/investments, which is perhaps the only way to deal with this issue. With the Biden/Harris catalyst, as well as increase awareness of the emerging economics, specifically the example of the Chinese governments' willingness to transition their infrastructure investments more and more into renewables, the renewables sector is expected to boom for at least the entire decade. One could say that we're looking at the start of the next bubble- "The Green Bubble". Parallels can be drawn to the Japanese bubble of the early 90's, and the tech bubble of the 2000's. However, since this is governmentally induced sector growth, it is also a permanent price shock that will be sustained by governments green infrastructure investments.
This is it for the upcoming green revolution.
-Step_ahead_ofthemarket
________________________________________________________________________________________
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well-informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content- contact me through any of my social media channels.
I won't dwell into the chart technicals' instead I will focus my attention on the fundamentals, in three key bullet points:
A) Firstly, I chose ICLN since it's by far the largest by volume and assets, green ETF. Interestingly it has had quite an abysmal performance relative to SPY for the past decade, as well as an appallingly negative Sharpe.
Since 2018, it's performance has picked up and relatively stabilized wrt the SPX. Despite of the negative dividend yield carry of about -1%, ICLN (0.62%) vs SPY(1.59%), it's negligible compared to the price appreciation component of these ETFs.
Moreover, it seems that the pandemic has been a positive catalyst overall, since it increased the odds of Biden winning the U.S. elections, and we all know the Democrats stance on environmental policy as compared to Trumps non-existent one. The Biden-Harris odds realized last week, which was followed by a bull-run. Considering the current pace of the momentum channel, ICLN is undoubtedly in a parabolic formation.
B) Another indication, is the price appreciation of precious metals used in production of sustainable energy products, such as lithium, palladium, nickel to name a few. Relative to gold, these metals generally have a positive market beta since their demand is largely influenced by economic growth, especially from some of the developing countries in the past decade(India, Indonesia, China etc).
Palladium:
Lithium ETF[LIT]:
Nickel:
Essentially, the price appreciation of these metals certainly is an indication of the growing demand, and therein the growth potential of the whole renewables sector, also an indication of the ecologically friendly premium corporates and governments are willing to pay. Naturally, if the cost of inputs becomes too high, implying a demand gap, but also lack of supply as it becomes more difficult to extract these metals, which in fact might produce more pollutants than the gain from utilizing these metals in developing sustainable products. However, it seems that this discussion so far is not in the news headlines, so therefore the current trend isn't threatened for now.
C) It is important to distinguish between the types of market participants wrt to their portfolio preferences, biases and why they are willing to pay for an ecological and/or CSR premiums. The general consensus is that CSR investments lately have outperformed sin stocks on a relative basis. One of the explanation is CSR branding, and the idea that consumers will pay a premium to be associated with such a brand, therefore the stocks that score highly on the ESG scale, are simply better investments despite their high multiples.
ESG/SPY:
I think in general, it boils down to three types of market participants in ESG assets:
1. Investors that genuinely care for the environment, and are extremely elastic in terms of the ESG premiums they pay.
2. Investors that are seeking "warm glow", i.e own these assets for the sake of feeling better about their choices. In this group I'd add investors that hold these assets for their reputational benefits.
3. Traders looking to profit off the current momentum channel, without any views on the environmental issues that we're facing.
In summary, it's clear that the sector principally benefits from governmental subsidies/investments, which is perhaps the only way to deal with this issue. With the Biden/Harris catalyst, as well as increase awareness of the emerging economics, specifically the example of the Chinese governments' willingness to transition their infrastructure investments more and more into renewables, the renewables sector is expected to boom for at least the entire decade. One could say that we're looking at the start of the next bubble- "The Green Bubble". Parallels can be drawn to the Japanese bubble of the early 90's, and the tech bubble of the 2000's. However, since this is governmentally induced sector growth, it is also a permanent price shock that will be sustained by governments green infrastructure investments.
This is it for the upcoming green revolution.
-Step_ahead_ofthemarket
________________________________________________________________________________________
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well-informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content- contact me through any of my social media channels.
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