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The two U.S. equity funds with the highest returns in 2020 both focus on clean energy, in a rationale for investors who have sought holdings with strong environmental, social and governance credentials.
The two funds – both managed by asset manager Invesco – more than tripled in value on the back of a surge in the value of solar energy stocks, which themselves benefited from favorable winds from strong inflows into the markets. ESG investment strategies.
The exchange-traded fund Invesco Solar, which has $ 3.7 billion in assets, had risen 238% year-to-date on Christmas Eve, topping the ETF and mutual fund rankings of American investments that invest in stocks, as compiled by Morningstar.
Among the ETF’s top holdings are two residential solar power providers, Enphase Energy, which is up nearly 600% in value, and Sunrun, which is up 400%.
The second best performing fund was the Invesco WilderHill Clean Energy ETF, which returned 220%. One of its biggest holdings is FuelCell Energy, which designs and manufactures power plants, whose shares have gained nearly 400% this year.
“A Joe Biden victory combined with rapidly falling renewable energy costs has contributed to greater appreciation of solar and clean energy funds,” said Rene Reyna, thematic and specialty product strategy manager at Invesco.
In the wake of this year’s strong performance, “we can expect some setbacks,” Reyna said, but added: “The underlying fundamentals in the renewable energy sector support our view. that we are in the early stages of longer term secular growth. trend.”
Global funds that hold ESG assets have jumped more than 50%, to over $ 1.3 billion, since the end of 2019, according to the Institute of International Finance, which said the trend had accelerated in recent weeks as investors expected active support from the new Biden administration.
Illustrating the flagship year of the strategy, an ESG fund is ranked fifth in the ranking of entries, by dollar amount, of all equity funds in the United States.
BlackRock’s IShares ESG Aware MSCI USA ETF had attracted a net inflow of $ 9.3 billion in the year ending Nov. 30, bringing its total net assets to $ 12.7 billion, according to Morningstar.
The fund is designed to broadly track the S&P 500, the benchmark US stock index, although it eliminates stocks from sectors such as tobacco and companies with low ESG scores. BlackRock has presented it to financial advisers and investors as an easy entry point to ESG investing, and has been among those who argue that the acceleration of inflows into these funds creates momentum that will drive popular ESG stocks up.
“The highest-rated ESG companies have collectively outperformed” during the pandemic market crash in March and beyond, said Romain Boscher, global director of equity investments at Fidelity International. “We believe that ESG adoption will only accelerate in 2021, especially since climate change is on the agenda in the United States.”
A clean energy index fund managed by First Trust, which has $ 2 billion in assets, is also among the top five performing U.S. equity funds of the year, with two Ark investment management which focus on technology trends, especially innovations in healthcare and cloud computing.
“These are innovation-driven niches that seem to have resonated with investors given the year we’ve seen,” said Tony Thomas, associate director of equity strategies at Morningstar. Meanwhile, he said, “ESG funds are resuming flows and I see no reason for this to decrease.”
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