Traditional energy equities and ETFs rebounded in the second quarter, but their year-to-date performances remain unimpressive. Their alternative counterparts, including the ALPS Clean Energy ETF (ACES), are, however, shining bright.
One unforeseen byproduct of the COVID-19 pandemic is less air pollution as lockdown restrictions have forced less travel worldwide, thereby reducing emissions. According to a Phys Org article, data collected in Delhi, India shows that cleaner air allows more sunlight to reach solar panels, which can help benefit renewable energy ETFs, including ACES.
From a fundamental standpoint, there are compelling reasons to consider a fund like ACES over fossil fuel counterparts.
“The energy sector is the worst-performing stock market sector in the first half, with plunging oil prices and consumer demand alongside heavy debt loads among the driving factors,” according to Seeking Alpha.
ACES Advantages
Renewable energy or clean energy ETFs that track industries like wind and solar farms are attracting more interest among investors seeking low-risk opportunities during this volatile period.
Similar to what happened during the 2008 financial crisis, investors turned to renewable wind and solar farms as a safe-harbor investment with attractive yields. Wind and solar farms have long-term contracts to sell their electrical output to utilities and companies with good credit ratings for long periods, which makes their returns stable and relatively low risk.
Boosting the long-term cases for ACES are data confirming solar and wind installation prices will continue declining in the coming decade. Renewables prices could increase due to the coronavirus, according to some market observers, but the consensus appears to be that the spike will be short-lived if it arrives at all.
“Alternative energy sources are loosely seen as competing with more traditional forms of energy, making the strong relative performance more notable,” according to Seeking Alpha.
ACES is coming off a second-quarter gain of about 46%, a performance that easily trounced the upside delivered by traditional energy ETFs in the April through June period.
Other alternative energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.
