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Solar ETF investors run away at risk of volatile subsidies and rate hikes

(Bloomberg) — The once-standard bearer for a boom in clean-energy funds is bleeding cash because of everything from rising rates to potential subsidy cuts — and solar stocks from President Joe Biden’s stalled infrastructure plan. are affected by.

Invesco Ltd.’s $2.4 billion solar ETF (ticker TAN) faced outflows of $417 million in December, the worst month in its nearly 14-year history. The outflow continues as its share price has fallen nearly 30% since October.

While the Federal Reserve prepares to raise interest rates, solar stocks have been caught in a wider rotation of high-growth technology firms, said Todd Rosenbluth, head of ETFs and mutual fund research at CFRA, that has also taken a hit in the sector. California last month proposed cutting subsidies for the homeowners’ system.

“It looks like it’s going to be beneficial to state utilities, but make solar ownership less attractive to new buyers,” he said.

The plan still faces a fair amount of scrutiny as critics argue it will add new fees for solar users and discourage installations. California Governor Gavin Newsom said on Monday that changes needed to be made before the proposal could be finalized.

But it’s not the only concern of the solar industry. Rosenbluth said the delay in President Biden’s Build Back Better plan means some clean-energy subsidy talks will be scuttled as the bill gets “watered down.”

Mohit Bajaj, ETF director at Wallachbeth Capital, said solar stocks are also under pressure as the Fed prepares to raise interest rates.

According to Bajaj, solar companies may suffer as they rely heavily on leverage to finance their activities. Rising rates can eat away at the value of their long-term cash flows, reducing the value of projects like solar farms.

“Investors are cutting their losses and opening their positions.

Other funds that focus on renewable energy — such as the iShares Global Clean Energy ETF (ICLN) and the ALPS Clean Energy ETF (ACES) — have also fallen since October, though not as much as Invesco’s ETFs. And their expense ratios – 0.42% and 0.55% respectively – are cheaper than TANs.

Solar funds are not just in competition with each other, they also have to compete with other alternative energy sources for investors. Despite environmentalists’ concerns, nuclear power is getting a facelift from governments trying to achieve near-zero greenhouse gas emissions. That’s why funds like the Global X Uranium ETF (URA) are “catching up,” said Bloomberg Intelligence analyst Eric Balchunas.

“Solar has always been considered as the solution to climate change,” he said. “Uranium is new to the picture, and people are seeing nuclear power as a major part of the solution.”

– With the assistance of Emily Graffio.

To contact the author of this story:
Peyton Fort in New York [email protected]

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