Oil stocks are destroying clean energy in 2021 after years of lagging behind

Over the past two years, electric vehicle and emerging renewable technology stocks have soared as investors priced in the transition away from fossil fuels, but so far in 2021 that narrative has reversed.

By the numbers: XOP, an ETF that tracks the largest U.S. oil and gas companies, has gained nearly 40% so far this year as oil producers like Diamondback Energy and Occidental Petroleum have seen their shares jump by more than 50%.

• The S&P 500 energy sector has been far and away the best performing of the index's 11 sectors (delivering 15 percentage points better return for investors this year than the second best sector, financials).
• Diesel, crude oil and gasoline have been the world's top performing major assets in 2021, each gaining more than 25%.

On the other side: Clean energy has suffered, led by the swoon of 2020's world-beating stock, Tesla, which has dropped into "bear market" territory having fallen by 20.6% from its last record high on Jan. 8.

• The decline in renewable energy names has been broad with companies as diverse as Chinese EV manufacturer Nio, California battery maker Romeo Power, hydrogen power company Plug Power and electric tractor trailer producer Hyliion Holdings all seeing big drops.

What they're saying: UBS Global Wealth Management CIO Mark Haefele is recommending "investors with a high risk appetite ... seek direct exposure to oil," even as crude prices reach one-year highs.

• "As border closures and quarantine measures are eased, this should release pent-up demand for holiday travel and other types of recreational activity, boosting demand for oil," he said in a client note.
• He expects global oil demand to reach 100 million barrels a day in the second half of the year, nearly equaling the global record of 102 million bpd.

Alternatively: "Given their aggressive discounting to present of long-term cash flows, they're suffering from the same effects as investment grade corporate bonds and anything else that pushes cash flow far into the future," Bespoke Investment Group said in a Monday post.

The big picture: Tech companies have broadly seen a turndown so far in February, but renewable energy companies have fared much worse. ICLN has declined 7.1% this year, while the Nasdaq Composite is up 4.5 % and the Nasdaq 100 is up 2.4%

The last word: The 2021 malaise is happening despite good news for the industry coming into the year: President Biden is expected to increase renewable energy investment in the U.S., oil prices are rising, and early estimates of global 2020 EV sales jumped to more than 3 million, reaching a market share of 4.4% — almost double 2019's 2.5% share.