Recent trends in clean energy ETFs
As we all know, the last few quarters have been a very dark period for conventional energy players due to the one-way slide of commodity prices. Earnings in the energy sector have been severely hampered, and so have investors’ returns. Conventional energy players have delivered about -50% returns in the last year, given the oil price drop. But has this commodity price decline proven to be a game-changer for clean energy stocks? No. Clean energy stocks also have shown about -35% growth in the last year.
The above graph shows the comparative stock movement of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares Oil and Gas Equipment & Services ETF (IEZ), the Guggenheim Solar ETF (TAN), and the wind energy–focused First Trust ISE Global Wind Energy (FAN). Renewable energy comes from natural resources like water, sunlight, and wind, which will have a minimal impact or no hazardous impact on the environment—avoiding thing like pollution, carbon emission, or fuel scarcity.
Crude oil: How deep is the dip?
You can’t simply view crude oil as a direct competitor of any form of renewable energy like solar or wind. Solar and wind energy is primarily used for electricity while oil is used mostly for transportation. Therefore, demand and price correlation doesn’t hold completely true between these sources. However, there’s no clear trend in these non-conventional energy stocks from the commodities drop. Since solar or wind energy is a developing technology, its production costs are bound to decrease—unlike fossil fuel production costs.
Social awareness and government incentives may be the factors to drive growth for clean energy stocks. China and the United States are the main growth drivers for solar and wind energy. SunEdison (SUNE) and Solar City (SCTY) serve ~90% of solar energy demand from the Americas. According to the Global Wind Energy Council, wind power could supply up to 12% of total global electricity demand. Limited resources of fossil fuels and environmental concerns should also drive the attractiveness of renewable energy.
Leading wind energy player NextEra Energy (NEE) accounts for ~2.16% of the First Trust Global Wind Energy Index Fund (FAN). On the solar energy front, First Solar (FSLR) forms ~6.60% of the Guggenheim Solar ETF (TAN). It has delivered as poorly as about -30% year-to-date.