In case you missed it, the world’s biggest superpower has a new president. Three turbulent months after the US election, which saw everything from legal challenges to violent insurrections, Joe Biden finally became the 46th president of the United States on 20 January.
The Democratic president promises a step-change from the previous administration in many key areas, not least in response to the ongoing COVID-19 pandemic, and an infrastructure stimulus expected to provide significant tailwinds for the construction and steel industries. Here, we pick out the investment themes that could be most affected by the change in administration.
Clean energy and solar
Biden reportedly called many world leaders soon after winning the election, stressing that he views tackling climate change as the most important challenge they currently face besides the coronavirus pandemic.
The president moved to return the US to the Paris climate agreement within hours of his inauguration. He is expected to expand state portfolio standards mandating that utilities buy or produce certain levels of renewable energy. He also wants this strategy applied at a national level, while intending to pour investment into the sector and thereby reduce costs.
Clean energy and related themes such as solar are therefore anticipated to surge under the Biden administration. The Invesco WilderHill Clean Energy ETF [PBW], which tracks an index of businesses in clean energy and conservation advancement, has approximately doubled in value since the start of November.
The fund’s largest holding, ReneSola Ltd [SOL], gained 631.6% in the three months to 3 February. On 25 January, it announced the sale of 10 million American depository shares (ADS) to raise $250m — that’s more than its entire market capitalisation before November.
ReneSola's gains in 3 months to 3 February
ReneSola is also held by the Invesco Solar ETF [TAN], although it currently makes up less than 1% of the fund. The share price of TAN’s top holding, Enphase Energy [ENPH], has almost doubled, gaining 87.4% in the three months to 3 February. The Invesco Solar ETF gained 68.7% in the same period.
Electric and autonomous vehicles
Electric vehicles will likely form an integral part of Biden’s green agenda. The Global X Autonomous & Electric Vehicles ETF [DRIV] tracks companies that develop electric vehicles and their components, as well as those developing autonomous vehicle technology, and has gained 48.7% since the beginning of November through 3 February.
Tesla [TSLA] has driven much of the ETF’s growth, with gains of 101.6% over the period, but hydrogen fuel cell producer Plug Power [PLUG] deserves credit for the charge too. The stock has grown 297.5% since the beginning of November to 3 February.
Plug Power's share price gains YTD
Besides a focus on green energy, the Biden administration is expected to usher in more relaxed cannabis legalisation. US vice-president Kamala Harris is a sponsor of the MORE act, which aims to remove cannabis from the Controlled Substances Act and decriminalise the drug at the federal level. Cannabis stocks jumped at news that the Democrats had won both of Georgia’s Senate seats in the January runoff elections, giving them control of both houses and paving the way for drug reform.
The Global X Cannabis ETF [POTX] has gained 120.4% in the three months to 3 February. The fund’s largest holding Tilray [TLRY], a researcher and cultivator of cannabis for medical purposes, has seen gains of 218.5% in 2021 alone, and 297.4% over the previous three months (through 3 February).
Tilray’s announcement in December of a merger with Aphria, POTX’s second- largest holding, has created an industry giant that has dislodged the previous incumbent, Canopy Growth [CGC]. Despite this threat to its dominance, Canopy’s stock has still grown 82.4% so far in 2021. All three stocks are also held by the Cannabis ETF [THCX], the ETFMG Alternative Harvest ETF [MJ], the Amplify Seymour Cannabis ETF [CNBS] and the AdvisorShares Pure Cannabis ETF [YOLO].
Put bluntly, this theme could go either way under Biden. Early indicators were that the new president would take a less antagonistic approach than his predecessor regarding competition between the world’s two largest economies. A relaxation of some of Trump’s import tariffs and tech restrictions were expected by a majority of respondents to a Focus Economics survey in the run-up to the election.
However, recent statements from the new administration have continued the tough talk. Jen Psaki, White House press secretary, said on 25 January that industrial espionage, IP theft and US technologies “facilitating China’s military build-up” remain concerns, in response to a question about restrictions on Chinese tech giant Huawei.
Regardless of the Biden administration’s long-term strategy, China’s increasing investment in Europe may give its tech sector scope for growth even without any easing of tensions with Washington DC.
The Global X MSCI China Information Technology ETF [CHIK], which tracks large- and mid-sized Chinese IT stocks, has grown 28.1% over the last three months and 7.7% so far this year to 3 February.
Growth has flattened since Biden’s inauguration, perhaps due to unexpectedly frosty words from the new administration, though more likely thanks to largest holding Xiaomi’s [1810.HK] continuing struggles since being added to the list of companies banned from US investment. However, second-largest holding Sunny Optical Tech [2382.HK] has good momentum, growing 33.9% so far in 2021, and the ETF could take off if Biden’s stance towards China softens.
Sunny Optical Tech's YTD share price gains
However, it is still very early days in the presidency.
Despite control of both houses, it’s as yet unclear which of his flagship policies Biden will win ground-breaking majorities for in the face of filibusters from a disgruntled, hostile Republican party — or indeed how the ongoing trade war with China will pan out.
One way or another, the US markets seem likely to look very different in four years’ time.