As we consider the investment case for energy markets, exchange traded fund investors can also look to renewables to capture the world’s push toward diversifying energy sources.
In the recent webcast, Capitalizing on the Clean Energy Transition, managing directors, portfolio managers, and senior research analysts at Duff & Phelps Investment Management Co. Benjamin Bielawski, Eric Fogarty, and Rodney Clayton touched upon the war in Ukraine, which has accelerated stress in the energy markets, and the significantly higher energy prices that will be with us for some time. Along with impacting traditional oil and gas markets, the current energy crisis helped highlight the companies shifting to cleaner and more sustainable technologies.
The ongoing energy crisis may be attributed to supply-side hurdles, notably low inventory levels that have contributed to volatile price swings. For example, U.S. natural gas inventories are at a 15% deficit to the five-year average. Additionally, when compared to levels a year ago, inventories are at an 18% deficit.
Meanwhile, as inventories were dwindling, demand has outgrown supply, especially in the post-pandemic expanding global economy, with many countries reopening.
Consequently, due to the combination of supply- and demand-side factors, we have witnessed surging energy prices. For instance, WTI crude oil prices have gained 52% so far this year while natural gas prices surged 118%.
The rising prices in traditional energy markets are also seen as a supporting factor for more economies to adopt alternative energy sources, lest they are fettered by the high energy prices. So far, 76 parties, representing 83 countries and 74.2% of global GHG emissions, have communicated a net-zero target. These countries have either enacted net-zero targets as laws, penned down net-zero targets in policy documents, or have only pledged net-zero targets.
Looking ahead, Duff & Phelps projected that private sector demand for renewables is expected to more than double by 2030. Given current onsite generation, certificate purchases, offsite solar, and offsite wind, the strategists warned that there is a significant shortfall between overall electricity demand in the years ahead compared to renewable energy demand. Consequently, there is a lot of room for growth in renewable energy to make up for this shortfall.
As a way to capture this growth opportunity, investors can turn to something like the Virtus Duff & Phelps Clean Energy ETF (NYSE: VCLN), the first ETF strategy managed by Duff & Phelps. The ETF seeks attractive total returns by investing globally in a portfolio of clean, renewable, and sustainable companies and technologies that will power future energy needs. Actively managed, VCLN focuses on well-positioned market leaders at the forefront of clean energy innovation and commercialization.
Duff & Phelps Investment Management pursues specialized investment strategies with exceptional depth of resources and expertise. Since its earliest beginnings, providing research and analysis of income-producing securities to Depression-era investors, the firm’s attention has been set on identifying attractive opportunities through active management and fundamental research while managing the associated risks. Today, building on a distinguished legacy, Duff & Phelps has earned a reputation as a leader in investing in Global Listed Infrastructure, Global Listed Real Estate, Clean Energy, and Diversified Real Assets.
VCLN’s investment process contrasts favorably with passive clean energy indexes’ less-defined investment processes, which are often driven by market capitalization and clean energy exposure scores derived from static, sometimes opaque, criteria. By contrast, the Duff & Phelps active investment management approach is more comprehensive than those of its passive competitors, resulting in a high-conviction stock portfolio with a more balanced risk profile.
Financial advisors who are interested in learning more about the clean energy transition can register for the Thursday, June 9 webcast here.