While picking individual stocks can be rewarding, so too can be identifying industries that are likely to outperform the broader economy via exchange traded funds, or ETFs. These investments can be a relatively low-cost way to participate in some of the world's most promising growth areas such as 5G networking, electric vehicles, clean energy, and much more.
Thankfully, nowadays there is seemingly an ETF for everything. Investors looking for broad exposure to what are likely to be some of the hottest themes in 2021 should look no further than these three funds:
Is There a Strong Infrastructure ETF?
President Biden has made clear his intention to deploy heavy funding towards infrastructure investment to promote growth and put the U.S. in a better position to compete globally. This could include spending on roads, bridges, water systems, electricity, and 5G infrastructure. And while other leaders have made similar vows in the past only to fall short, a Democrat-controlled government suggests Biden may make some inroads.
A great way to play the domestic infrastructure theme is the iShares U.S. Infrastructure ETF (IFRA). This a well-diversified fund of more than 130 stocks that are positioned to benefit from a rise in infrastructure related activity. It is a mostly a mix of utility, industrial, and materials companies that together account for approximately 95% of the portfolio.
Names like progressive utility company Nextera and electricity leader Avista provide exposure to the development of renewable energy infrastructure. Then there is Cleveland Cliffs, a leading U.S. mining company which is largely focused on steel production.
Last year the ETF was up a modest 7.3% and lagged the broader market. But with the prospect of increased infrastructure activity here at home, the time is now for these companies to capitalize. The fund has a reasonable 0.40% expense ratio and should be built into a long-term portfolio strategy.
What is a Good Way to Invest in Clean Energy?
Along the same lines, clean energy is expected to be near the top of the new administration's agenda. President Biden wasted no time in making this priority clear by revoking a permit for the Keystone XL oil pipeline on his first day in office.
He has also made clear his plans to move towards the goal of making the U.S. a net zero emission economy by 2050. This could involve a ten-year, $400 billion investment in clean energy and innovation.
While this is a certainly a long time to wait for climate change action, we have already seen the market gravitate towards clean energy stocks. The iShares Global Clean Energy ETF (ICLN) has been a popular way to play the clean energy space.
There are other clean energy funds out there, but what stands out about this ETF is its global nature. A push towards clean energy is clearly a common goal for most countries and one that will take cooperation on a worldwide scale. The 30 stocks in the fund represent a nice mix of the leading renewable energy companies that are making a difference.
Investing in ICLN gives the investor exposure to solar, wind, and other green energy plays. Emerging electric vehicle power company Plug Power is the top holding. The maker of hydrogen and fuel cell technology has a huge growth opportunity ahead in the EV space and across several industrial markets.
Given the huge run in this stock investors that may think it's too hot to touch here could gain exposure by investing in the diversified ICLN ETF. The fund surged 141% in 2020 but is still trading below where it was when it launched in June 2008. Look for it to charge higher in 2021.
What is the Best Cannabis ETF?
Finally, the cannabis space is getting more and more attention these days. The potential for more states to legalize marijuana-derived products for medicinal or recreation use has investors scrambling to get into this investment. But with so many small, unprofitable players out there it's hard to pick a clear winner.
Enter the ETFMG Alternative Harvest ETF (MJ). As the world's largest cannabis ETF, the $1.5 billion fund tracks a range of cannabis companies that are positioned to benefit from further legalization of medicinal and recreational cannabis worldwide.
It offers exposure to 33 companies participating in a global cannabis market that is forecast to grow 24% annually over the next five years and reach $66.3 billion.
The timing to get into this ETF is ripe considering it dipped 11.5% last year and despite the massive growth opportunity in the industry remains down 25% since its December 2015 inception.
Canadian cannabis companies Aphria and Tilray are the top holdings and together make up around 22% of the fund. Last year the pair announced plans to merge and become the world's leading cannabis company.
The rest of the fund includes the who's-who of cannabis names such as Canopy Growth, Aurora Cannabis, Cronos Group, and U.K.-based pharmaceutical company GW Pharma. Grow Generation, a leading retailer of cannabis products is another attractive holding.
This ETF doesn't come cheaply, however, with a 0.75% expense ratio. But given the tremendous growth potential in the global cannabis industry (and the fund's 3% dividend yield), it is well worth the price.7 ESG Stocks that are Leading the Way to a Better World
It's becoming increasingly popular for investors to "vote their values." One way they do this is by investing in companies that make a demonstrable effort to improve the world. This is creating a category of stocks known as ESG stocks.
ESG stands for Environmental, Social, and Governance and it covers a broad range of issues. The environmental component is relatively straightforward. This analyzes and measures how companies address issues such as carbon emissions, deforestation, and green energy initiatives including sustainability efforts built into their supply chain.
The social component covers issues such as an organization's commitment to issues like the gender pay gap and diversity but also areas such as data security, sexual harassment policies, and fair labor practices. The governance component touches on areas like diversity within the corporate board of directors and executive pay.
The focus of this presentation is to give you seven companies that are giving more than just lip service to ESG initiatives. One of the criteria used in selecting the stocks in this presentation was the company's Net Impact Ratio. This is calculated from data produced by the Upright Project's Net Impact Model.
The Net Impact Model is a mathematical model of the economy that produces continuously updated estimates of the net impact of companies by means of an information integration algorithm. MarketBeat captures key insights and presents them under the "Sustainability" tab on the company's profile page.View the "7 ESG Stocks that are Leading the Way to a Better World"