ETF Prime: Lara Crigger on clean energy and ESG investing

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 ETF ESG space as a whole. Vivek Ramaswamy of Strive highlights the launch of their US Energy ETF (DRLL) and a “post-ESG” approach to asset management. Dynamic Beta’s Andrew Beer explains iMGP DBi Managed Futures Strategy ETF (DBMF).

As 2022 markets have swerved, traditional energy has seen some resurgence, becoming one of the only sectors to consistently post positive numbers. Meanwhile, as growth stocks took off, ESG ETFs have come under intense scrutiny, with many investors wondering what’s in these ETFs and whether they’re actually achieving their goals. ESG and offer an attractive value proposition. After being the darlings of 2020, ESG ETFs seemed to be fading until recently.

More than three months iShares Global Clean Energy ETF (ICLN) is up more than 35%. At the same time, the traditional energy juggernaut SPDR ETF Selected in the Energy Sector (XLE) is down 4%.

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

Before passing the Cut Inflation Act, Congress had been ambivalent about climate policy, and supply chain issues were hampering the ability of clean energy companies to get revenue. raw materials. “In 2021, that’s when chickens in the supply chain went home to roost. This manifested itself in difficulties sourcing raw materials for energy stocks clean, especially in the United States where they source much of it overseas,” Crigger said. training effect.”

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

It’s not just performance that has increased, VettaFi has seen a broad commitment to clean energy research across the site. Crigger said: “The Alternative Energy Equity category has just climbed the ranks of the most popular categories this month. So far in August, it is the fifth most popular ETF category on our platform. after several months at about 40 or 50″.

Traditionally, advisors viewed clean energy and conventional energy stocks as diametrically opposed, but more recently they have both become essential ingredients in a diversified portfolio. Crigger said: “Advisors increasingly see energy as an either/or decision with fossil fuels on one side and clean energy on the other.”

Last month’s flows for clean energy were positive, but Crigger observed that “it’s not just clean energy ETFs that are seeing the bump.” Crigger highlighted the large numbers accumulated by ESG funds with goals going beyond just clean energy with the iShares ESG Aware US Aggregate Bond ETF (EAGG) getting $211 million in streams in the last 30 days and the WisdomTree Emerging Markets formerly State-Owned Enterprises Fund (XSOE) which generated $100 million in streams. The KraneShares Global Carbon Strategy ETF (KRBN) also sees streams.

Strive pushes for an anti-ESG “capitalism of excellence”

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

“Over the past five years, many asset managers have adopted social and political agendas that they impose on the companies they invest in,” Ramaswamy said. “They use ordinary people’s money to fill important positions in public companies, then force these public companies to adopt social and political programs that most ordinary people, the owners of capital, do not agree on. .” Strive’s goal is to use their shares to vote against what it describes as the “demands of the ESG movement”.

Ramaswamy hopes to fight what he sees as growing politicization in boardrooms by voting proxies they fully control towards profit and what he describes as “premium capitalism”.

“We thought it was important to bring a different voice to the table for the energy industry in the United States by telling these companies that it’s okay to drill, fracture, do more of each, to produce more energy, whatever makes you more successful in the long term without those ESG requirements,” Ramaswamy told Geraci.

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

Ramaswamy views Strive as a post-ESG company. “If you want to go down the dodo path, you might look in the rearview mirror at the ESG era of the past five years.”

Andrew Beer on Managed Futures

Geraci also spoke to Andrew Beer of Dynamic Beta about the iMGP DBi Managed Futures Strategy ETF (DBMF), up more than 20% over the year. Beer said, “If you had to use three words to describe what we do, and it’s going to sound a little strange when you’re talking about a liquid alternative ETF, but our approach is simple is better.” Beer views the DBMF as a user-friendly way to achieve the diversification benefits of managed futures hedge funds at a lower cost. “You get this really unusual combination of being able to not just match what hedge funds are doing, 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 do and tries to copy it through the managed futures platform.

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

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