Playing The Clean Energy Market With ETFs

President Joe Biden’s stand on a cleaner greener America has been very clear right from his campaign days. And true to his word, the President rejoined the 2015 Paris Climate Agreement as soon as he took office. He also initiated action to replace up to 645,000 government fleet vehicles with EVs.

But more should follow given that his proposal talked about a $400 billion infusion into things like battery technologies and EVs. This could take care of continued subsidies (GM and Tesla have already surpassed the 200,000 unit limit, so their cars don’t qualify for the $7,500 tax credit). Although, with Biden, the focus is likely to be on middle-class consumers with a preference for “made in America”. More money could also flow into new charging stations that are necessary but expensive to build, and remains one of the biggest deterrents to EV adoption. Money could also be diverted into R&D because the limited range and long charging time of EVs also turn customers away. There could also be cash for clunker scheme that offers some consideration to people so they trade in their old vehicles and opt for EVs instead.

Biden’s election promises also included a $2 trillion investment in clean energy with the goal of making electricity carbon-free by 2035. This would include other than EVs, the promotion of energy efficiency in buildings and agriculture.

So the whole segment looks very attractive as of now. The only problem is that everyone wants to jump on the bandwagon, so stock valuations aren’t making that much sense. Especially since all these promises will take time to become policy and then be implemented. So there may be a limited near-term impact. Moreover, it’s also difficult to determine which stocks will benefit more than others.

So we are in a kind of situation where we know that good things are afoot, but we don’t know when exactly they will happen or which stocks will benefit the most.

And this is exactly when it could pay to diversify, i.e. play the whole market instead of any individual stock. And as you know, you can do that really well with ETFs.

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