Alternative energy exchange traded funds, including the PowerShares WilderHill Clean Energy Portfolio (NYSEArca: PBW) and First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGS: QCLN), have struggled mightily this year against the backdrop of tumbling oil prices, but investors might want to revisit green energy funds.
The greater regulation on fossil-fuel power plants should be a boon for the alternative, clean energy industry. However, the continued weakness in green ETFs suggests that Wall Street believes poor fundamentals over the short-term currently outweigh the long-term benefits of the new proposal. Tighter fossil-fuel regulations could eventually work in favor of solar ETFs, including the Guggenheim Solar ETF (NYSEArca: TAN) and the Market Vectors Solar Energy ETF (NYSEArca: KWT).
Some market observers argue that the lighter wind should be a catalyst for renewable energy investors to gain exposure in diverse places. Investors should look beyond a single firm or region in the nascent industry. Investors, though, can instantly diversify across the clean energy space through a broad ETF. For instance, PBW and QCLN include a range of alternative energy companies, including those engaged in solar photovoltaics, biofuels and advanced batteries. [Renewable Energy ETFs Look Like a Good Long-Term Play]
“Green-energy prices have been falling rapidly, as well. The cost of the solar systems bought by consumers has declined 15% a year over the past eight years, and Deutsche Bank analysts expect costs to fall another 40% over the next four to five years. But while coal and natural-gas prices will rise again at some point, green energy is likely to just get cheaper,” reports Lewis Brahm for Barron’s.
Many firms have already been investing into clean energy projects in recent years. For instance, Citi wants to allocate $100 billion to environmental finance over the next 10 years and Wells Fargo has invested $52 billion in environmental efforts since 2005.
The shift into renewables may also be seen as a way for large banks to diversify their portfolios, which are heavy in fossil fuel – the largest U.S. banks are among the top financiers of the coal industry. Nevertheless, the firms acknowledged that they are in a position to shape the energy industry ahead.
“Of course, there are risks: One of them is political. Globally, green-energy projects are the beneficiaries of government subsidies that can easily be revoked. In the U.S., for instance, a 30% tax credit for solar installation is due to decline to 10% in 2017. Yet solar prices are falling so rapidly that such subsidies will soon be unnecessary,” according to Barron’s.
Guggenheim Solar ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.