A favorable political climate in Washington, D.C. has catalyzed a strong run for both cannabis and green energy stocks in early 2021.

Cannabis grower Steve Dillon tends to his plants on his farm in Humboldt County, California.

The first month of trading in 2021 is already in the books, and due to the GameStop (GME) frenzy, it was a wild one. 

But beyond the GME fireworks, there were several other big trends that emerged, as evidenced by the top-performing exchange-traded funds (ETFs) in January.

According to ETF performance last month, three of the hottest themes in the market to kick off 2021 include cannabis, clean energy and rare earth metals.

Looking at the cannabis sector, it appears traders and investors are anticipating that a slew of favorable federal legislation could push up valuations across the industry. The top-performing overall ETF last month was Global X Cannabis ETF (POTX), which increased in value by over 46%.

Spiking interest in the cannabis sector appears to have been driven in part by the Democratic sweep of Congress and the White House. And while nothing is guaranteed, the possibility of cannabis legalization at the federal level now appears within reach—a legislative effort that might include “restorative justice” for people convicted of pot-related crimes. 

As a result of these developments, optimism in the sector has spread beyond just POTX. Of the top 25 ETFs during January, five of them were associated with the cannabis industry, including:

  • Global X Cannabis ETF (POTX), +46.46% 
  • Cannabis ETF (THCX), +33.92%
  • ETFMG Alternative Harvest ETF (MJ), +32.75%
  • AdvisorShares Pure Cannabis ETF (YOLO), +23.94%
  • Cambria Cannabis ETF (TOKE), +22.19%

Further gains in the sector will likely hinge on the successful navigation of reformative cannabis legislation in Washington.

Moving on, another hot theme to start 2021 has been green energy. During his campaign, President Joe Biden made clear that transitioning the country away from fossil fuels would be a key priority of his administration.

And while solar and wind often get the most attention in the renewable energy group, biomass, geothermal and hydropower also stand to benefit immensely if the United States embraces a net-zero emissions goal. 

Judging by the performance of green energy stocks in January, it appears that investors and traders are starting to take Biden’s intentions seriously.

Of the top 25 performing ETFs in January, five were linked to the green energy sector, including:

  • SPDR S&P Kensho Clean Power ETF (CNRG), +20.81%
  • Invesco WilderHill Clean Energy ETF (PWB), +15.57%
  • Invesco S&P SmallCap Energy ETF (PSCE), +15.49%
  • ALPS Clean Energy ETF (ACES), +14.31%
  • First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), +13.73%

The big question for green energy going forward is whether Democrats can persuade their Republican colleagues to support such a comprehensive energy transition. 

Beyond cannabis and renewable energy, two other important narratives making noise early in 2021 include 3D printing and rare earth metals. 

At the start of January, 3D Systems (DDD) released unexpectedly positive earnings results, catalyzing an epic rally in the company’s shares. DDD shares have risen by over 300% since Jan. 6.

The rally in DDD also raised the profile of the 3D printing sector as a whole, pushing the broader 3D Printing ETF (PRNT) up more than 26% in the month of January. Traders seeking to follow the action in this sector might also want to add Stratasys (SSYS) and Proto Labs (PRLB) to their watchlists.

Lastly, market participants may want to keep a close eye on new developments related to so-called “rare earth metals.” The VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) increased by more than 12% during the month of January.

Rare earth metals are strategically important because many key products of the digital age can’t be manufactured without them, including semiconductors, solar cells and lithium-ion batteries. 

As their name suggests, rare earth metals aren’t widely abundant, which means prices can fluctuate significantly when supplies are constrained. Because reserves of rare earth metals are often concentrated in one region of the world, geopolitical factors can also affect their pricing and availability.

China, a major supplier of rare earth metals, recently announced a tightening of regulations related to the mining and sale of said metals, which may have catalyzed the recent increase in REMX shares. 

Source: Forbes

Investors and traders following this niche of the financial markets should continue to monitor geopolitical news, and rare earth supply and demand, for further insight into potential opportunities in the sector.

U.S.-based investors may also want to keep an eye out for the initial public offering (IPO) of USA Rare Earth, which could debut in 2021.

To learn more about the ETF landscape, readers may want to review a previous episode of Market Measures on the tastytrade financial network.

For daily updates on everything moving the markets, TASTYTRADE LIVE is also recommended.

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Sage Anderson is a pseudonym. The contributor has an extensive background in trading equity derivatives and managing volatility-based portfolios as a former prop trading firm employee. The contributor is not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about any of the topics covered in this blog post, or any other trading-related subject, to support@luckboxmagazine.com.