Using ETFs to play three likely big themes for 2021

Published Sun, Dec 6 20209:00 AM EST

The new year is rapidly approaching, and Wall Street is already mapping out their investment plans for 2021. Pat Tschosik, senior portfolio strategist at Ned Davis Research, thinks investors should be mindful of three themes heading into the new year to maximize their returns. These themes are a "green wave," which encompasses clean energy and electric vehicles; a recovery from the coronavirus pandemic; and President-elect Joe Biden's agenda. All three of these themes have already seen sharp gains in 2020, and are poised to carry that momentum into 2021. Tschosik highlighted a series of exchange-traded funds investors can use to capitalize on these trends next year. 'Green wave:' clean energy and electric vehicles Clean energy stocks, including those focused on solar power, have been on a tear this year as costs continue to fall and the regulatory outlook for these companies improves. First Solar , for example, is up 59.5% in 2020, outpacing the S & P 500 by 45 percentage points year to date. Tschosik said this is only the beginning for clean-energy names, noting: "a move this strong could also be an indication of a momentous shift away from fossil fuels and toward renewable energy." "Clean energy momentum could continue for decades given the backing from both governments and private industry," he added. Shares of electric-vehicle makers have also been on fire in 2020, with Tesla being the most-notable gainer. Tesla shares are up 616% for the year. Tschosik noted that while some electric-car stocks have run up dramatically, "we still see investable areas in this space." The strategy pointed to two ETFs that can give investors exposure to what he calls the "Green Wave:" the First Trust Nasdaq Clean Edge Green Energy ETF ( QCLN ) and the Global X Autonomous & Electric Vehicles ETF ( DRIV ). QCLN has rallied 146.4% in 2020 and has a net expense ratio of 0.6%. DRIV, which has an expense ratio of 0.68%, is up 54.5% for the year. Covid recovery Expectations of the economy recovering from the coronavirus pandemic have risen in recent weeks as a slew of drugmakers release positive vaccine trial data. This propelled the broader stock market to record levels, and was particularly beneficial to travel and leisure names. "As hope for an effective coronavirus vaccine soars, so do the stocks that were hit hard by social distancing measures," said Tschosik. For example, United Airlines and American Airlines are both up more than 47% over the past month. Meanwhile, Disney and TripAdvisor have rallied 23.2% and 57.9%, respectively, over that time period. For the year, however, all four stocks are lagging the broader market. Tschosik thinks investors should get exposure to travel and leisure stocks as they will likely continue their ascent in 2021. Specifically, the strategist likes the Invesco Dynamic Leisure & Entertainment ETF ( PEJ ) and the U.S. Global Jets ETF ( JETS ). PEJ has a net expense ratio of 0.63% and is down 14.7% year to date. JETS is down 25.4% and has an expense ratio of 0.6%. Biden agenda good for pot stocks Tschosik noted that "several industries stand to benefit from Joe Biden's political agenda," but "one less talked about industry that could benefit is Cannabis." Pot stocks such as Aurora Cannabis and Tilray are down 57.9% and 49.8%, respectively, in 2020. However, they have rallied 134.2% and 77.3%, respectively, during the fourth quarter as more states vote to make marijuana consumption legal. Tschosik highlighted two elements that could further lift cannabis stocks in 2020: legalizing marijuana at a national level is "believed to be on the progressive agenda," and that some states are "cash-strapped and need tax revenue from new sources like cannabis." Another other stock group that could benefit in 2021 from Biden's agenda is health care as the incoming administration will likely try to strengthen the Affordable Care Act, said Tschosik. The strategist recommends buying the Global X Cannabis ETF ( POTX ) and the iShares U.S. Healthcare Providers ETF ( IHF ) as ways of getting exposure to these trends. POTX has dropped nearly 19% in 2020 and has an expense ratio of 0.50%. IHF has popped 17% this year and has an expense ratio of 0.42%.

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The new year is rapidly approaching, and Wall Street is already mapping out their investment plans for 2021.

Pat Tschosik, senior portfolio strategist at Ned Davis Research, thinks investors should be mindful of three themes heading into the new year to maximize their returns. These themes are a "green wave," which encompasses clean energy and electric vehicles; a recovery from the coronavirus pandemic; and President-elect Joe Biden's agenda.

All three of these themes have already seen sharp gains in 2020, and are poised to carry that momentum into 2021. Tschosik highlighted a series of exchange-traded funds investors can use to capitalize on these trends next year.