Clean energy ETFs are on a tear globally. They have raked in billions in assets, crushed the market, and defined the news cycle this year.
Some have taken their strong showing as evidence of a paradigm shift in investing away from oil and coal companies and towards solar and battery technology. Others have taken it as a lesson that politics matters, given the timing of the rally with President-elect Joe Biden’s win in the US election.
But perhaps the best lesson is the importance of good luck and market timing. And that there is such a thing as being too early to invest in new technology, as well as too late.
ICLN and TAN have performed spectacularly the past year, easily beating the market.
But the two are old ETFs, with more than a decade of trading history. And zooming out on their performance, their results are a lot less bright.
TAN’s case is especially instructive. Since inception, the fund is still down more than 50%. At its worst – in April 2017 – investors who bought in at inception would have seen a decline of 94%.
ICLN offers a similar story. While its performance this year has been truly stunning, it is down since inception as well.
There is a lesson here, I suspect. And it is that picking stocks is not like arriving at dinner parties. In picking stocks, being too early to pick a trend can be worse than being too late.
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