By Gavin Maguire
LITTLETON, Colorado- After a rough couple of years, exchange-traded funds (ETFs) tied to clean energy generation and distribution are starting to outperform investor vehicles centered on oil and gas exploration and production.
Since the start of 2022, most major ETFs tied to renewable energy generation have lost between 20 percent and 70 percent of their value as rising interest rates, supply chain disruptions and a slowdown in clean energy installations cut consumer demand and hit the earnings and stock prices of clean energy companies.
Over the same period, cuts to crude oil output by major producer groups have helped lift earnings for oil and gas producers, which in turn boosted the returns of ETFs tied to that space by more than 50 percent .
However, over the past month an array of ETFs dedicated to key aspects of the energy transition – from renewable energy generation to smart grid management and uranium extraction – have all posted positive returns just as a major ETF tied to oil and gas output lost roughly 5 percent .
Several factors could derail this relative recovery in clean energy momentum, including a worsening in Middle East conflict and higher-for-longer interest rates in the United States.
But if a peace deal is reached between Israel and Palestinian militant group Hamas in Gaza and interest rates trend lower in key consumer markets, further pressure on oil and gas prices could materialize just as the affordability of renewable generation equipment improves.
That in turn could potentially accelerate the recent divergence in ETF returns and support clean energy investing trends while undermining the appeal of fossil fuels.
Over the past five years or so, investment vehicles tied to clean energy have endured a roller coaster ride.
Appetite for exposure to renewables soared from early 2020 through to the start of 2021 as several major economies adopted supportive policies designed to accelerate the energy transition away from fossil fuels and stimulate the development of industries and expertise in the clean energy arena.
The iShares Global Clean Energy ETF characterized the broad flow of investor interest in clean power during that period, with prices rising by around 180 percent from January 2020 to January 2021.
Over that same period, investor interest in traditional energy developers dwindled amid a broad push-back against fossil fuels, exacerbated by the global downturn in fuel use during COVID-19 lockdowns.
The S&P oil & gas exploration and production ETF one of the largest ETFs tracking fossil fuel output, slumped by over 60 percent through the opening four months of 2020, and finished out the year still nursing more than 40 percent losses despite recovering mobility and business activity in several economies.
