It’s been a rough three-year stretch for renewable energy stocks and related ETFs. So some investors may be pondering the megatrend status of the clean energy thesis.
Many relevant ETFs were saddled with losses to start 2024. So those concerns are all the more justified. On the other hand, perhaps it can now be argued that the clean energy transition as a megatrend is underappreciated or being glossed over by pensive market participants.
Those factors could signal opportunity with assets such as the ALPS Clean Energy ETF (ACES). The fund, which follows the CIBC Atlas Clean Energy Index, has taken its lumps along with its peers. But it could be a credible rebound candidate.
Lower Interest Rates Could Help ACES
One factor that could stoke a 2024 rebound for ACES is the Federal Reserve proceeding with interest rate cuts. The reasoning is simple: Higher borrowing costs make borrowing in the name of expensive renewable energy projects less appealing.
“As such when interest rates are high, the return on investment for these projects can be adversely affected, leading developers to hesitate and potentially put new projects on the back burner,” observed deVere Group CEO Nigel Green. “Beyond the large transitional projects, the industrial sphere has been delving into alternatives to traditional fuels with lower carbon footprints, such as the amalgamation of hydrogen with natural gas. This strategic shift is motivated by a dual concern for both environmental preservation and economic viability.”
Whether it’s transportation, utilities or other industries, elevated interest rates are acting as headwinds to funding renewable energy projects. However, high rates don’t alter the need to address climate change and reduce carbon output.
Looked at another way, some companies and governments may be delaying renewable energy projects due to high rates. But for the most part, such projects aren’t being scrapped outright. That could be a sign that, with ACES, patience could potentially be rewarded.
“The enduring validity of the long-term investment perspective is underscored, with companies maintaining their dedication to environmental objectives, and governments worldwide offering financial backing to facilitate the transition,” added deVere’s Green. “But now the stage appears to be set for an upward trajectory in energy transition investments. This, together with global commitments to environmental sustainability intensifying, 2024 could see the start of an energy transition investment megatrend.”
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