As 2020 comes to an end, bulls can take heart that all S&P 500 industry groups have staged a nice comeback from their coronavirus springtime bottom. And if market conditions stay the same between now and year end, eight out of 11 S&P 500 industry sectors will record gains in 2020. Not bad for a year that has shaken global economies with a healthcare crisis, business shutdowns and travel bans.

One of the losers among the S&P industry groups is energy, as represented by the Energy Sector SPDR ETF (XLE), which has declined 29% year to date. Top holdings within XLE include old-guard energy stalwarts Chevron, ExxonMobil and ConocoPhillips.

On the one hand, the ugly results of the S&P 500’s worst performing industry sector (energy) was partly due to a massive consumption drop during the global pandemic. On the other hand, the shift toward environmentally friendly energy alternatives is another major factor. Will the emerging clean energy sector overtake them?

For now at least, ETFs linked to clean energy strategies have been on a roll.

During the past three years, the iShares Global Clean Energy ETF (ICLN) has provided an average annual return of 43% versus a loss of 12% on XLE. Similar focused funds such as the Invesco WilderHill Clean Energy ETF (PBW) and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) have jumped 57.4% and 48.3% on an annualized basis during that period, respectively. Does the bullish trend in clean energy stocks have legs?

Positive macro-economic developments continue to swing the pendulum in favor of clean energy investments like wind and solar power, along with electric vehicles. Here’s are a few recent examples:

• Earlier this year the state of California, which represents the largest U.S. auto market, mandated that only zero-emission vehicles can be sold in the state starting in 2035. Other countries and states have taken similar steps.

• The incoming Biden administration has pledged to accelerate the deployment of clean energy by investing $400 billion over ten years as part of a broad mobilization of public investment. 

• Last week a coalition of European financial institutions managing over $9 trillion in assets agreed to make their investment portfolios reach net-zero greenhouse gas emissions by 2050. Moreover, the number of companies and local governments with a net-zero pledge has doubled during the past year, according to the Data-Driven EnviroLab and NewClimate Institute.    

All of the formerly mentioned clean energy funds include exposure to both U.S. and foreign-based stocks. Each fund has different sector weightings, but renewable energy equipment, alternative fuels and electric utilities are among the sub-industry groups covered in those funds.  

With just 30 stocks, ICLN has the most concentrated portfolio, while QCLN holds 44 stocks and PBW has 47. ICLN has the lowest expense ratio among its clean-energy peers at 0.46%. QCLN charges 0.60% and PBW is at 0.65%.

While the death of the oil-and-gas industry has been exaggerated, there’s no denying a major trend change in global energy consumption and production is underway. There will be many bumps in the road ahead, but clean energy ETFs look poised to capitalize on these trends as they position for take-off.

Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”