Energy ETFs: There is 'good news for petroleum drillers' through forward pricing
VettaFi Financial Futurist Dave Nadig sits down with Yahoo Finance Live to talk about the opportunities in clean energy and petroleum drilling ETFs, as well as the ETF landscape for meme stock investing.
SEANA SMITH: Well, clean energy is of the winners of the newly signed inflation Reduction Act. And we've got a look at how you can position yourself in this week's ETF report, brought to you by Invesco QQQ. We have David Nadig of VettaFi Financial Futures joining us now. Dave, it's great to see you. So what does this mean for the average investor? How can investors position themselves in order to benefit from this new law.
DAVE NADIG: Well, I think it's fair to say this is good for the planet, but it's not necessarily good for every part of your portfolio. I think some folks are really trying to cherry pick here. I would focus on the use cases. What's in this bill that really drives existing use cases forward? And I pick out two big areas. One would be automobiles, right? Electric vehicles, plug-in hybrid electric vehicles.
There's a great ETF for that. It's the Index IQ Cleaner Transport ETF. It charges about 45 basis points. And as opposed to just going after Tesla and Rivian and the companies that sort of make all the headlines, it's truly a true ecosystem play. It's getting you not just the front end of the curve, the Teslas of the world, but those carmakers that are making strong commitments that are going to be growing into this now $45 billion of new support we've got for that space.
The other thing I like about Cleaner is that it also does a little good on the side. It's a so-called dual impact funds, which means that it's actually working with the World Wildlife Foundation to actually-- or the National Wildlife Foundation to actually do some good by making donations there. That's step one. It's mostly performed S&P-like so far this year. So I think it's a good base to be thinking about, getting some additional exposure in your portfolio.
The other play there is Solar. A lot of money in this bill to go towards clean energy sources and infrastructure. The big play there is TAN, the Invesco Solar ETF. That thing's been on fire so far this year. Last three months, it's been up 44%. It's one of the best performing funds you can find out there in the core equity space. Still room to go there. I think we're going to continue to see that market expand, not just from the climate bill, but frankly, from all of the consumer sentiment that's been driving towards clean energy for the last decade.
DAVE BRIGGS: Without delving anywhere near the politics, it's not necessarily terrible for oil and gas stocks, though, correct? This bill.
DAVE NADIG: No, absolutely not, right? I mean, it's a very realistic bill. It has a lot of things in there that might surprise people like tax credit for nuclear energy production. It's not awful for petroleum drillers. In fact, there is good news for petroleum drillers not related directly to this climate bill.
But earlier this year, when we drew down some of the Strategic Petroleum Reserve, the way we're going to refill it now is with forward pricing. That's great news if you're a driller because it means you know what you're going to get paid for that excess demand that we get when we have to refill the SPR. So it's not all bad for Exxon out there, I think, but I do think that you need to be very specific and think about the use cases if you're trying to make a specific investment play.
SEANA SMITH: Dave, we want to switch gears here just a little bit, talk about another huge trend that we've seen play out in the markets, especially over the last couple of days. And that's the meme stocks. I know that there's a couple of ETFs out there that allow investors to get exposure to some of these meme favorites. And they certainly have seen a lot of interest over the last week or so. What's your reaction to that?
DAVE NADIG: Yeah, I'm not a huge fan of the two big ETFs we have tracked in this space-- Buzz from VanEck and Meme from Roundhill, both perfectly well constructed, both trying to essentially measure social sentiment, tracking things like the Reddit message boards and what people are saying on Twitter, and create a kind of social momentum strategy.
Neither one has done particularly well, to be honest, over the course of the last year. Both are trailing by about almost 20% so far this year. So it's a little tough to love these funds. More to the point, though, if you look at where that activity in meme stocks has been very recently, it's been in new names. It's been in Bed, Bath & Beyond. It's been in Revlon, neither of which are in either of these two funds.
So if you actually look at what these funds hold, it's not surprising names. It's obviously the Teslas and the AMCs and the GMEs of the world. But you go through that list, and you get down to stocks that are social media darlings, but don't tend to get these meme stock plays when this bolus of capital decides they want to pile into a short squeeze.
DAVE BRIGGS: And finally, Dave, single stock ETFs, a broad explainer if you will.
DAVE NADIG: Yeah, so we've had a number of recent launches just in the last few weeks of ETFs that give you either leveraged exposure to a single stock, like, say, 1 and 1/2 times Tesla's performance, or inverse exposure, say, minus 100%. It goes down when you go up. Very limited use cases, but they have gotten substantial volume so far. I think investors are looking at these as speculative trading vehicles, particularly around, say, an event like earnings or in an index inclusion.
On the downside, on the inverse version of this, I suppose one of the selling points is you can only lose all your money, which, when you short a stock, you obviously have infinite loss potential if it just keeps going up and up. So very, very technical, tactical tools. I'd be cautious if anybody thinking they're holding these for more than a couple of days. But if you are a very active trader, they're another sharp tool in that drawer for you.