Donald Trump was officially sworn into office early Tuesday morning (AEDT) and has wasted no time in highlighting some of his key priorities while in the Oval Office.
Since then, the new president has signed a flurry of executive orders, notably in the presence of a crowd of supporters, and declared that the US faces a “national energy emergency”.
Trump also took aim at several domestic and international initiatives, including Biden’s Inflation Reduction Act of 2022, in addition to ordering that the US withdraw from the Paris Agreement.
“All agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022,” one such order detailed, according to the official White House website.
Summarised simply by the President on Tuesday, Trump wants America to “drill, baby, drill”.
“The inflation crisis was caused by massive overspending and escalating energy prices, and that is why today, I will also declare a national energy emergency,” he said in his inaugural address.
“America will be a manufacturing nation once again, and we have something that no other manufacturing nation will ever have – the largest amount of oil and gas of any country on earth – and we are going to use it. We’ll use it.
“We will be a rich nation again, and it is that liquid gold under our feet that will help to do it.
“With my actions today, we will end the Green New Deal, and we will revoke the electric vehicle mandate, saving our auto industry and keeping my sacred pledge to our great American autoworkers.”
Investors might not have necessarily been surprised at these developments – market experts have weighed in on the impact that a Trump administration would have on clean energy stocks before his presidency was even confirmed.
Closer to home, Australian clean energy exchange-traded funds (ETF) have struggled in recent years.
Namely, data from Global X has shown that Australian clean energy ETFs had been some of the worst-performing products for the second year in a row.
Looking at the worst-performing ETFs for the last calendar year, the Betashares Solar ETF (TANN) and VanEck Global Clean Energy ETF (CLNE) both landed in the top five.
In a conversation with InvestorDaily ahead of Trump’s inauguration, investment strategist Marc Jocum explained that the prospect of another Trump presidency does present its own challenges for this segment of the market, particularly for those companies relying on regulatory support.
“Trump has threatened Biden’s Inflation Reduction Act, which was quite pro-energy transition around things like tax credits for the rollout of renewable energy. So I think a lot of people, because of Trump’s likely withdrawal from a lot of the government support for the sector, and probably favoring other fossil fuel-intensive industries, you’ve also seen a lot of pessimism within clean energy stocks.”
According to Jocum, only a few years ago, it was one out of every $5 dollars going into ETFs falling into the environmental, social and governance (ESG) segment. Now, it’s down to around 2 per cent of this number.
However, the investment strategist asserted that, in spite of the headwinds, “ESG is not a fad.”
“I think it’s not necessarily that this industry around clean energy and ESG is dead, I just think it’s lost a little bit of steam,” Jocum said.
“And not just that, but it also might have got intertwined with politics too much, and a lot of investors would be better off removing politics from their portfolio overall.”
As such, part of this underperformance, he added, can relate to an energy company’s reliance on political support or the outcome of regulatory tailwinds.
“If that goes away, that can definitely impact an innovative industry like this. So regulatory challenges and competition can amplify their struggles, which makes their share prices highly sensitive. So yeah, this year might be quite a volatile year for clean energy stocks.”
And while the US president is attempting to draw a line in the sand regarding the place that clean energy has in the economy of a world superpower, Jocum pointed to the prevailing interest in clean energy globally, even if that sentiment is susceptible to softening.
“Overall, I still see that, particularly in Australia, there is interest in these types of investing products. But I think people are going to be a little bit more tactile, because ESG isn’t going away at all,” he said.
“I don’t really believe ESG is a fad, it’s just more functional of the current economic nature of where markets are … [investors] try to balance the long-term necessity of their ESG goals while also focusing on short-term financial returns.”
At the same time, Jocum explained that a stubborn macro environment has left many long-duration growth stocks, such as clean energy-oriented companies, picking up the pieces.
But even so, the investment strategist believes that, as opposed to remaining in a diversified clean energy fund, investors will opt to be more strategic.
“Some may look to be a little bit more tactile and look for outperformance or look for areas that have got a lot of political support.
“A lot of countries are still struggling to meet their climate initiatives to get to net zero and they keep getting delayed, which to me, says that whilst this is very important, it is costly as well.
“A lot of investors are prioritising near-term profits over long-term climate friendly support. So that’s where people just have to weigh up the two to work out what works best for them for their portfolio,” Jocum said.
