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The Retired Investor: Will Infrastructure Spending Boost Clean Energy Stocks?

By Bill SchmickiBerkshires columnist
Renewable energy stocks were all the rage last year. This year, however, not so much with clean energy funds taking hits of between 25-50 percent. Will President Biden's proposed $2.25 trillion infrastructure bill breathe new life into this sector? 
 
President Biden ran on a platform that included the build out of an infrastructure plan that would "achieve net-zero emissions, economy-wide, by no later than 2050." By the time of his November election last year, investors had bid up the clean energy sector, which includes everything from electric cars, and clean water to solar and wind power, by over 200 percent in some cases.
 
New renewable energy exchange traded funds (ETFs) and mutual funds were offered with names like "Tan" and "Fan" that were snapped up in anticipation that they could only go higher. Of course, like all mini-manias, prices failed to keep up with investor's expectations. Markets moved on to buying "reopening trades" like dirty old oil stocks, airlines, and cruise ships.
 
However, on Wednesday, March 31, President Biden unveiled some of the details of his multitrillion-dollar infrastructure plan. In addition to programs to upgrade the nation's schools and spend $580 billion in job training and R&D, the plan should benefit many companies in the clean energy sectors.
 
About $621 billion will go toward physical improvements to roads, bridges, public transit, ports, airports and electric vehicles. Another $300 billion is earmarked for improving drinking-water infrastructure, expanding broadband access, and upgrading electric grids. Included in that spending will be energy-efficient affordable housing, electric vehicle charging stations, as well as potential extensions in government tax credits that would benefit both the solar and hydropower industries.
 
Congress has already extended the investment tax credit used for residential and commercial solar projects at the current rate of 26 percent for two years in 2020 as part of the $2.3 trillion spending and coronavirus relief bill. If the clean energy lobbyists get what they want, it could mean billions of dollars for solar, wind, clean energy storage, and other industries from electric vehicles to pollution controls that would decarbonize our environment.
 
Allied Market Research, an expert in this area, forecasts that the global clean energy market will be worth $1.5 trillion by 2025. There is an array of companies to choose from, in fact, so many that the average investor may have a hard time making investment decisions. However, fear not, because there are many exchange traded funds that do the work for you. 
 
Some funds that are available include the IShares Global Clean Energy ETF (ICLN), the Invesco WilderHill Clean Energy ETF (PBW), and the ALPS Clean Energy ETF (ACES). There are also some more focused funds such as the Invesco Solar ETF (Tan) and the First Trust Global Wind Energy ETF (Fan).
 
Although President Biden's infrastructure plan should be good news for Americans and the economy it is far from a done deal. His plan to raise corporate taxes to 28 percent from 21 percent and to establish a global minimum tax for multinationals corporations to ensure they pay at least 21 percent (up from 13 percent) in taxes in any country won't sit well with Republicans and many others on Wall Street. I expect there will be a lot of horse trading in the weeks and months ahead before a final agreement is reached and passed. But if it is, some of the prime beneficiaries should be the clean energy companies.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

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