As oil prices plunge to seven-year lows, investors are seeing less green in alternative- or clean-energy-related exchange traded funds.
The Guggenheim Solar ETF (NYSEArca: TAN) and the Market Vectors Solar Energy ETF (NYSEArca: KWT), which track global solar photovoltaic panel producers, have declined 17.2% and 12.3%, respectively, so far this year.
ETF investors can also follow the broader green energy industry through the PowerShares WilderHill Clean Energy Portfolio (NYSEArca: PBW) and First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGS: QCLN), which both track broad exposure to U.S. clean energy companies, including solar photovoltaics, biofuels and advanced batteries. Year-to-date, PBW fell 15.2% and QCLN dropped 11.1%.
Additionally, the Market Vectors Global Alternative Energy ETF (NYSEArca: GEX) and PowerShares Global Clean Energy Portfolio (NYSEArca: PBD), which cover global clean energy companies, dipped 0.5% and 0.1% year-to-date, respectively.
Observers have attributed the falling price of oil as the main culprit to investors’ sudden disfavor with the nascent industry.
“Since by and large, producing clean energy is more expensive than oil, the lower the price of oil, the less economically viable clean energy becomes as an alternative,” Boris Valentinov, an investment analyst at FactSet, told the Wall Street Journal. “The fortunes of clean-energy companies are closely tied to what happens with oil.”
On Monday, crude oil prices plunged toward a seven-year low after the Organization of Petroleum Exporting Countries decided to maintain its high production. [Oil ETFs Plunge to All-Time Lows]
Jason Bloom, PowerShares director of commodities and alternatives product strategy, argues that U.S. clean energy companies are struggling to compete against cheaper coal and natural gas. Additionally, the sector won’t be able to enjoy as much government support as subsidies expire.
However, countries around the world are pushing toward alternative energy sources. The environment is also in the spotlight now as the United Nations climate talks have been underway in Paris, France. [ETFs For The Environmentally Conscious]
Global clean energy companies “have benefited more from the accelerating push toward renewable sources of energy in China, India, Africa and even the Middle East,” Bloom said.
William Belden, head of ETF business development at Guggenheim Investments, warned that while demand for alternative energy continues to grow, especially in the emerging markets, the clean energy industry remains volatile as witnessed this year.
Nevertheless, the First Trust Global Wind Energy Fund (NYSEArca: FAN), which focuses on the wind industry, has stood out this year, rising 14.0% year-to-date. Ryan Issakainen, ETF strategist at First Trust, believes the outperformance may be attributed to attractive valuations, stabilizing Europe where many major companies are based and improved viability of wind power, which is “a little bit more viable without needing as much support from government policy.”
For more information on the green energy space, visit our clean energy category.
Max Chen contributed to this article.