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Clean energy ETFs go from darlings to duds

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Yahoo Finance’s Alexis Christoforous and Cinthia Murphy, Managing Editor of ETF.com, discuss why clean energy ETFs have gone from darlings to duds.

Video Transcript

ALEXIS CHRISTOFOROUS: Time now for our "ETF Report" brought to you by Invesco QQQ. Joining me is Cinthia Murphy, managing editor of etf.com. So Cinthia, I know that there were some really hot ETFs last year, including clean energy, which have so far been the worst performing ETFs of 2021. Talk to us about what you're seeing in that space.

CINTHIA MURPHY: Hi, Alexis. You know, sometimes some of these growth stories just have to go through some growing pains. And I think clean energy is there. It took a huge step up last year, especially the last quarter, following the presidential election, all thanks to an administration that was coming in that is really supportive of clean energy. He's talking about making big investments in this industry. And these stocks just took off.

So some of these ETFs that own these stocks, funds like T-A-N, TAN, which is a solar power energy ETF, or ICLN, which is the biggest clean energy ETF out there, I mean, they were up, TAN was up 233% last year. ICLN was up almost 150%. So it's just looks like a case of we got a little bit ahead of ourselves, and now we have to give it a little back, consolidate before we actually start to see the investment and the effort to grow this industry.

ALEXIS CHRISTOFOROUS: So there doesn't seem to be, if I'm hearing you correctly, a fundamental reason why we're seeing this pullback. How much of this is because of that rise we're seeing in the bond market when it comes to those yields and investors trying to reposition their portfolios?

CINTHIA MURPHY: Yeah, I think the rising yields has put a lot of the equity valuations in focus. There's a lot of concern about some of these more growthy segments. Are they too high? Are they overvalued? Unless now there's a news catalyst to keep supporting these types of price levels after the massive runs we saw last year, you know, there's been a pullback in the valuation.

So I think that's definitely a factor here is just putting some pressure on some of these really lofty valuations you're seeing in some of these cutting edge clean energy names that now need a catalyst to really start to deliver on the innovation and the promise of growth in clean energy. But from a big picture perspective, fundamentally, I agree. Nothing has changed. They're still, the outlook is very positive. The future looks like to be a clean energy future. So it just, we may have gotten just too far ahead of ourselves here a little bit, and now we just have to consolidate a bit.

ALEXIS CHRISTOFOROUS: Speaking of getting ahead of ourselves, you've seen that meteoric rise in Bitcoin and other cryptocurrencies. I know that's translated into an interest in blockchain ETFs, because we don't quite yet have those cryptocurrency ETFs for people to start to dive into. So tell me what you're seeing with regard to blockchain.

CINTHIA MURPHY: Yeah, blockchain is another growth segment that's done a completely different story. So right now, it really is a massive growth story. The ETFs, there's four blockchain ETFs in the market, and they are among the best performing equity ETFs this year, delivering double digit gains in some cases. And it is partly because some of these crypto miners, some of these names are really finding their footing here. It's an industry that's maturing.

But also, a lot has to do with Bitcoin prices. And because you can't access Bitcoin through an ETF today, I mean, there's other ways to access through different open end funds, but if you want an ETF wrapper for Bitcoin, your closest vector to that is a blockchain ETF today in the United States, until the SEC approves a Bitcoin ETF. There's several in registration. We're waiting for it to happen any day. Who knows if it happen this year. But for now, blockchain suffices.

And among these four funds, B-L-O-K, BLOK, has done the best. I think specifically because it is the only of these blockchain ETFs that actually invest in Bitcoin itself. It allocates to the Grayscale Bitcoin Trust, so it's an equity fund of blockchain companies, but it has this direct exposure to Bitcoin prices in there that has put it ahead of the curve.

ALEXIS CHRISTOFOROUS: You know, I'm curious if you're seeing interest in interest rate sensitive type ETFs. By that, I mean the financials, the utilities. As we see those yields rise in the bond market and we're seeing people dumping tech stocks. I mean, look at the NASDAQ today, off more than 2%.

CINTHIA MURPHY: Yeah, absolutely. XLF, the S&P 500 financial sector ETF, is doing really, really well. The counterpart in tech. SLK, is not. So there is definitely the play on banks love higher rates. They make more money, they're more profitable then. And this is a segment that has really lagged pretty much every other S&P 500 sector since the 2008 financial crisis. So financials are a great value opportunity and higher rates are their best friend. So it's been a great time for financial stocks.

ALEXIS CHRISTOFOROUS: And before we let you go, what sort of one ETF trend that you're watching that maybe the average investor isn't watching for 2021, Cinthia?

CINTHIA MURPHY: You know, there's a lot of things going on this year that are exciting. I think the Bitcoin story is very exciting. We all want to see what happens next in terms of a Bitcoin ETF, yes or no. There is the race for space. Some of these space exploration ETFs, there's a new fund coming in from XAR. Everybody's excited about what that's going to do to the segment. And there's always pot stocks that are also on fire. It's a segment that's doing really well this year.

So there's a lot interesting. But we're also keeping an eye on fixed income, trying to see where in the bond market investors are finding the better value and the lowest risk. We haven't seen the flood you would expect into TIPS if people were really concerned about inflation. So we're kind of waiting to see if that's going to emerge. So plates are full with lots of stuff to pay attention to this year.

ALEXIS CHRISTOFOROUS: For sure. All right, Cinthia Murphy over at etf.com. Good to see you.