Clean energy ETFs begin to surpass oil & gas peers

Exchange-traded funds (ETFs) associated with clean energy are beginning to outperform those linked to oil and gas exploration, Reuters reported on Tuesday.

Since 2022, most major renewable energy ETFs have seen a value drop of 20 per cent to 70 per cent due to rising interest rates, supply chain issues, and a slowdown in clean energy installations.

However, in the same period, reductions in crude oil production by major groups have boosted the earnings of oil and gas producers, leading to over 50 per cent returns on related ETFs.

In the past month, a variety of ETFs dedicated to energy transition aspects, including renewable energy generation, smart grid management, and uranium extraction, have all shown positive returns. This is in contrast to a major oil and gas ETF, which lost approximately 5 per cent.

Several factors, such as escalating conflict in the Middle East and persistently high interest rates in the US, could potentially hinder the recovery momentum in clean energy.

However, if a peace agreement is reached between Israel and Hamas in Gaza and interest rates decrease in key markets, oil and gas prices could face further pressure.

This could coincide with improving the affordability of renewable generation equipment, potentially accelerating the recent divergence in ETF returns. This trend could bolster clean energy investments while diminishing the attractiveness of fossil fuels.