Renewable energy stocks operate in a crowded market, and risk being in the same position as technology stocks in the dotcom boom, according to index provider MSCI.

Using MSCI’s stock-crowding model to identify which themes could be considered crowded, the ACWI IMI Efficient Energy Index had 8 per cent crowded stocks by weight as of the end of March 2021. For reference, this is similar to the level of crowding in smaller-cap US technology stocks in 1999.

The potential impact is large., with the Efficient Energy Index consists of firms that offer products and services that promote power generation using renewable sources. MSCI found that the five largest renewables-themed ETFs by AUM had similar to slightly higher weights in crowded stocks. Additionally, many of the most crowded stocks were held across multiple funds.

In some scenarios, MSCI’s models predict that if the market meets a “severe economic headwind”, the entire clean energy sector could by over 40 per cent, twice that of ‘normal’ stock.

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