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From the “Get woke – go broke” files – a quick look at a few “Green” ETF’s making headlines for “stellar” performance over the last 5 years against the overall market - flash mob investing
Check out this headline from a few weeks ago.
Here are the top 4 best performing ETF’s from the table in the article:
“Below is a list of the best-performing clean energy ETFs.”
Looks pretty good, right? Five year returns of between 12.5% and 18.5% per annum?
Let’s take a closer look.
By, for example, typing in “TAN ETF” into your search bar, you can get to the charts of price movement over time.
I won’t clutter up this article with the charts for the S&P500 and the other 3 ETF’s
Let’s up date the returns and compare those with “the market” and look at one year, five year p.a. change from highs and tabulate them.
So, checking out the column “Last 5 years” it is true that these 4 ETF;s have outperformed the “market as represented by the S&P 500 Index.
But look closer. In the “Last year” column, whilst the “market” is up 14%, these ETF;s are down by between 13% and 44%. Now look at the right hand column “% off high”. Whilst the “market” is off 4%, these ETF’s are down between 46% and 62%. Quite the crash. Not only that, but the peaks in prices of these ETF’s are within three weeks of each other, in early 2021.
Note that “the market” return will have been lowered by the performance of shares that have similar character as these ETF’s.
I don’t have the resources to look at the holdings of the ETF’s over the last five years or the market capitalisation of the ETF’s as investors poured in, during their run-up in price, but let me show what I would want to analyse, from a “value creation/destruction” perspective.
Let’s look at that chart of Invesco Solar again. Notice how the entire appreciation in price occurred during the period from the end of March 2020 (around 25 bucks a share) to 121 bucks at end January 2021? Up almost 400%. All other “action” is awful.
Over that same period, the “market” went up from around 2,540 at end \March 2020, to around 3,800 at end January 2021, up an impressive 50% but sill far below the gain in the Invesco Solar ETF.
So, what the hell happened? Usually this sort of price action attracts a “speeding ticket” from regulators. The action was similar in each of these ETF’s – meaning it could not be missed.
We can get a clue from how ETF Understanding the ETF creation and redemption mechanism | Schwab Funds (schwabassetmanagement.com)
To create additional shares of an ETF, an AP will generally purchase all the securities that constitute the ETF in appropriate proportion to the overall portfolio and will then exchange this “basket” of securities with the ETF issuer in exchange for one or more creation units of the ETF.
Under certain circumstances, an AP may provide cash-in-lieu of some or all of the basket securities, along with a transaction fee to offset the cost to the ETF of acquiring the securities.”
AP = authorized participant
I suggest that AP’s had to go out and buy a whole bunch of thinly traded shares once the “flash mob” of “woke” crowd funders created demand for the “green” funds.
Whereas a well traded share is almost priced the same whether you want to buy or sell, at any volume you desire, “thinly traded” shares have a laree spread between the “bids” of those willing to buy and “offers” of those willing to sell – and those bid and offer prices are for low volumes.
So, instead of a quote from many “players” in say, AAPL of 189.68 on the bid side to 189.69 on the offer side for 100,000 APPL shares, you might see a price of 15 bucks to buy and 20 bucks to sell for just 1,000 shares for a thinly trade stock.
What’s more, once you have dealt in AAPL, the price is not likely to change much for a few thousand shares, but the NEXT price in the thinly traded share you just bought at 20 bucks’, is likely to be a BID of 20 bucks and the NEXT offer of, say, 25 bucks.
Simultaneously apply this issue across, say, 20 holdings in a small ETF over and over again with demand for hundreds of times of “normal” volume for a single trade and you can see how the price of the underlying shares in small “green” ETF’s is “ramped”.
Usually a regulator would suspend trading and call for an investigation by issuing “speeding tickets” as there is a long history of such price action being fraudulent market manipulation.
Was the market manipulated? In my opinion, it ”walks like a duck and talks like a duck” so yes. It has all the same hallmarks of mob violence we all saw during the “summer of love” around the country.
I shudder to think just how much money was bilked from that flash mob of investors..
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