Invesco’s CleanTech ETF (NYSE:PZD) has dropped most of its year-to-date gains in this past week as market volatility seems to have affected the fund’s short-term performance, a situation that could be presenting a buying opportunity for those who might be arriving a bit late to the ‘green rally.’
Prior to this week’s downtick, the ETF had booked an 8.8% YTD gain for investors, with its Ormat Technologies (NYSE:ORA), Umicore (OTC:UMICY), and Eurofins Scientific SE (PA:EUFI) holdings contributing their fair share to those gains.
However, the latest jump in market volatility amid the speculative frenzy seen by top-shorted stocks seems to have prompted a flight-to-safety move among investors, while some investment funds might have been forced to liquidate positions in non-related securities to cover for the losses they experienced during the short squeeze.
The downtick could be creating a potential buying opportunity for late buyers who might have been waiting for a dip in the clean energy sector to jump on board of the positive momentum that this segment of the market has been seeing lately.
Last year, Invesco’s PZD delivered a solid 50% gain for investors by following its strategy of allocating resources into companies that increase the efficiency of other organizations by offering environmentally-friendly solutions.
As of yesterday, the company’s top ten holdings accounted for only 30% of the funds $500 million AUM, with the ETF currently holding a total of 60 stocks for an average 1.7% weight per holding, while its top three holdings are currently Umicore, Eurofins Scientific SE, and ABB Ltd (NYSE:ABB).
What is technical analysis suggesting about the future of PZD?
The latest rally seen by the cleantech sector has been fueled by a positive backdrop, especially for companies within the United States.
A seemingly imminent turn towards renewable sources of energy during the pandemic, President Biden’s commitment to destine $2 trillion in federal funds to a green initiative, and the ambitious goal of multiple corporations to achieve net-zero carbon emissions over the next 10 to 20 years are just some of the macro factors that are driving clean tech stocks higher. Further supported by half of the best performing 16 ETFs that made over 100% gains last year were belong to green energy sector.
In additional, President Biden just signed an executive order that reaffirmed his commitment to putting climate change at the center of the country’s foreign and national security policy, aiming to reach a target of carbon pollution-free electricity in the United States by 2035, while conforming a National Climate Change Task Force that will oversee the achievement of these and other far-reaching goals in the matter.
One of the most interesting paragraphs of this order for cleantech firms is found in Section 210, which states: “The heads of agencies shall identify opportunities for Federal funding to spur innovation, commercialization, and deployment of clean energy technologies and infrastructure for the Director of the Office of Management and Budget and the National Climate Advisor…”
The paragraph continues: “…and then take steps to ensure that, to the extent consistent with applicable law, Federal funding is used to spur innovation, commercialization, and deployment of clean energy technologies and infrastructure”.
This means that the cleantech sector will be benefitted not just directly and indirectly by the $2 trillion that Biden pledged for this initiative, but also, to some extent, from the individual initiatives of government agencies and institutions that will also incentivize the implementation of green solutions to reduce their individual net emissions as well.
According to research from ReportLinker, the size of the United States clean energy technology market was $84 billion in 2020 while the global market came close to $300 billion. Impact investing fund, comprises of private funds that put environment and social causes at the forefront of investing have also grown at the annual rate of 27% to $715 billion between 2013 and 2019.
If Biden’s plans for this sector come to fruition, the rate of growth for this particular market will likely accelerate to an extent that is not necessarily priced into the market’s current forecasts for the industry.
This exciting backdrop facilitates the job of explaining why cleantech firms have seen their market value expanded to record highs lately, making the current dip a potential buying opportunity for long-term investors.
Meanwhile, from a technical standpoint, the chart above shows that there is a possibility that the latest downtick could accelerate over the coming weeks, as early buyers could take the chance to book some of their profits while new buyers might step in to keep pumping the price.
This view is reinforced by the MACD oscillator, which has already sent a sell signal while showing a pronounced downtrend.
Moreover, the RSI has already gone below 50 and a move towards the 50-day moving average seems likely at this point.
If that threshold is broken, the downtrend could accelerate to the area of support highlighted in the chart, with the price possibly landing at $70 or $65 before a technical rebound.
Patience, at this point, could help long-term investors in entering a position on PZD at a much more decent price on the prospect that this positive momentum might continue for years to come.