3 ETF themes for an improving economy and cleaner energy in 2021

Published Tue, Dec 29 20209:16 AM ESTUpdated Tue, Dec 29 202010:07 AM EST

Investors should increase their exposure to metal miners, clean energy and Chinese stocks to maximize their returns in 2021, according to Astoria Portfolio Advisors' John Davi. Stocks in these groups have been on a tear this year amid increasing expectations of an economic recovery as well as potential changes to the regulatory environment in energy. For example, metal miner Freeport-McMoRan is up nearly 88% year to date, while First Solar has rallied 81.7%. Davi thinks investing around these themes can yield even more returns in the new year, and he advises investors to use exchange-traded funds to play them. Metal miners Investors can use three ETFs to play metal-miners in 2021, Davi said: The Global X Copper Miners ETF ( COPX ), the iShares MSCI Global Metals & Mining ETF ( PICK ) and the SPDR S & P Metals & Mining ETF ( XME ). The COPX ETF has risen nearly 50% in 2020, led by gains in Vancouver-based Capstone Mining. Year to date, Capstone Mining is up more than 200%. The ETF has an expense ratio of 0.65%. PICK, which has an expense ratio of 0.39%, is up 23.3% this year. XME has gained more than 11% this year and has an expense ratio of 0.35%. Despite their strong performances, Davi said, "nowadays, it feels like nobody wants to hold commodity equities within reach of a 10-foot pole. Based on our experience, that is usually when you want to buy an asset." Clean energy Clean-energy stocks have risen strongly this year as implementation costs, coupled with expectations of supportive policies from the incoming Biden administration. The iShares Global Clean Energy ETF ( ICLN ) has more than doubled in 2020, gaining 140% in that time. The ETF's jump had been led by a more than 900% rally in Plug Power, a company that develops components for electric-car batteries. ICLN has an expense ratio of 0.46%. Davi noted that a divided Congress could block a clean energy deal, but he still recommends the investment because "there is enough of a margin of safety in this area." He pointed out that ICLN earnings are expected to grow by 31%, while the SPDR S & P 500 ETF Trust's ( SPY ) profits are forecast to expand by 22% in 2021. Chinese stocks Davi recommends investors incorporate the iShares MSCI China ETF ( MCHI ) into their portfolios to gain exposure to the Chinese markets. MCHI has an expense ratio of 0.59%. The ETF is up 20.8% year to date, and is outperforming the S & P 500 by roughly 5 percentage points. "This year was a perfect example of the value of having China in a portfolio," said Davi. "We are in the middle of one of the worst recessions in history and China operated as though it had not missed a beat." Davi added that Chinese stocks remain attractive heading into 2021 because the government can "stimulate their economy like no other country in the world. They have their own monetary and fiscal systems and are not as reliant on the Western economy as they used to be."

A contractor for First Solar works on construction of the Tenaska Imperial Solar Energy Center South project in Imperial County, California.

Sam Hodgson | Bloomberg | Getty Images

Investors should increase their exposure to metal miners, clean energy and Chinese stocks to maximize their returns in 2021, according to Astoria Portfolio Advisors' John Davi.

Stocks in these groups have been on a tear this year amid increasing expectations of an economic recovery as well as potential changes to the regulatory environment in energy. For example, metal miner Freeport-McMoRan is up nearly 88% year to date, while First Solar has rallied 81.7%.

Davi thinks investing around these themes can yield even more returns in the new year, and he advises investors to use exchange-traded funds to play them.