Clean Energy Monthly Report | July

Clean Energy ETF Monthly Report: Key Takeaways

June proved to be another challenging month as recessionary fears mounted on the back of higher inflation and slowing growth. The month also capped off the worst first half start to the year since 1970.[1] Here’s a couple things that weren’t invented at that time: The internet, email, mobile phones, barcodes, post-it-notes, the Rubik’s cube, MRI machines, Walkmans, and floppy disks.

Back in 1970, we had M2 contracting sharply, Core PCE was 4.7%, Vietnam war spending surged, and recession ruled the market. Now, we have M2 contracting, Core PCE also 4.7%, spending spiralling, and extremely tight monetary conditions. It looks like the fed has pivoted from a soft landing towards one that will do anything to put a lid on inflation. [2]

With great inflation comes great rate hikes. The most important question right now is just how and when inflation will peak. While interest rate hikes help abate demand, the supply side of the equation remains mainly unsolved, as 2/3rds of the recent CPI inflationary reading was fuelled by the supply side.

Supply chains yet to come back online, the Russia/Ukraine war, and rising Energy prices have thrown more fuel on the fire…literally. This has caused the “price of everything” to skyrocket, yet the consumer has remained strong in step with the booming labour market until very recent readings.[3] Cracks are starting to show as economists start to put percentage figures on the likelihood of a recession (if we are not already in one).

While commodities spiked into the first half of the year, they are now starting to turn the corner (especially on the industrial metals side) as we are lapping comps and demand concerns start to mount. It looks like an easing in commodity prices is now absolutely necessary before we see peak inflation. Once we better understand what this looks like, it will be time to sharpen the pencil on beat-down companies that have seen severe multiple compression. With cash flows pushed to future dates, we believe renewables have been adversely affected and this will ease up in H2.

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.;

Macro Outlook

We continue to realize each week how underbuilt and fragile our global energy infrastructure is. European gas prices nearly doubled over the month of June alone while oil has marched higher YTD significantly, despite recent pullbacks. [5]

The Supreme Court in the United States adversely ruled against the Environmental Protection Agency (EPA), stating that neither the EPA nor any other agency may adopt rules that are "transformational" to the economy — unless Congress has specifically authorized such a transformative rule to address a specific problem, like climate change.[6] This ruling will immediately limit environmental protection and is especially regressive given that there were 112 environmental protection rules that were rolled back during the Trump Administration that will likely be interpreted as transformational to the economy — meaning they are on the chopping block in their entirety.

German government drafted law that allows it to take stakes in struggling gas importers in bid to avoid widespread insolvencies while allowing firms to pass along higher gas prices to customer. [7]

We believe we are now starting to see inflationary pressure ease. Oil, soy, wheat, and corn prices have now sharply declined. The cure for higher prices is higher prices. With inflation easing, it should give risk-on assets permission to rally as the Fed eases pressure. 

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Clean Energy ETF Performance (As of 30.06.22)

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 30/06/2022. Please note that all performance figures show net data.

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