Institutional investors dumped shares of North American renewable energy companies during the first quarter of 2021 amid fears that the sector had become dangerously overvalued.
Professional investors sold a net 17.6 million shares of 10 renewable energy companies tracked by S&P Global Market Intelligence during the first three months of the year. The sell-off marked the largest decrease in institutional ownership in the group in more than a year and was a sharp reversal from the prior quarter, when professional investors added a net 65.4 million shares to their portfolios.
Investors of all types have backed away from the renewable energy sector during the first quarter of this year despite growing tailwinds as governments and businesses step up efforts to limit climate change. The iShares Global Clean Energy ETF, for instance, a BlackRock Inc. fund with $5.9 billion in assets, is down about 20% year to date compared to an increase of 12% in the value of the S&P 500.
The first wave of selling coincided with warnings of a green bubble after soaring valuations in 2020 drove gains of more than 140% in a number of renewable energy indexes and exchange traded funds. The sector has also been hit with fallout from a winter storm in Texas in February that cost owners of wind farms in the state nearly $4.2 billion. More recently, renewable energy stocks have slumped in the face of rising raw-material costs.
"Overall, the medium- and long-term energy transition mega-theme remains intact ... however, we don't see catalysts in the very near term (3-months) that are capable of getting the group moving," analysts at Simmons Energy, a division of Piper Sandler, said in May.
SunPower sees biggest quarterly decline
SunPower Corp., which installs solar and energy storage systems at homes and businesses, saw the biggest first-quarter decline in institutional ownership in the group of companies tracked by S&P Global Market Intelligence. Professional investors sold a net 22.4 million SunPower shares in the first three months of the year, cutting their ownership of outstanding shares by 14.9%. The company's stock price, which is down 5.4% year to date, fell sharply after it reported in February that adjusted earnings tumbled in the fourth quarter of 2020. In March, SunPower said its long-time CEO, Thomas Werner, was retiring.
"We are encouraged to see the company growing its pipeline and expanding the attach rates on storage and investing in its digital platforms," analysts at Oppenheimer & Co. Inc. said in May. "We remain on the sidelines as we look for evidence of sustainable growth and margin capture."
At the other end of the spectrum, residential solar companies Sunnova Energy International Inc. and Sunrun Inc. saw the biggest inflows of institutional money during the first quarter. Among the group of renewable energy companies tracked by S&P Global Market Intelligence, the two are consistently the most popular with institutional investors. During the first quarter, professional investors added 8.8 million Sunnova shares to their portfolios and 5 million shares of Sunrun.
Still, both companies have been hammered by the broader sell-off in renewable energy stocks. Sunnova's stock price is down 37.4% year-to-date, while Sunrun's has fallen by 38.1%.