Exchange traded funds ETFs that invest in stocks related to the energy transition have outperformed the major funds tied to oil and gas firms over the past month as the decline in oil prices since mid-April dragged down shares of fossil fuel companies. The rebound in clean energy ETFs has just begun. But it could stop in its tracks if investor sentiment sours again amid persistently high interest rates and the U.S. political debate and divisions over ESG investments.
Renewable energy funds as a whole have had a difficult two and a half years since the end of 2021, as clean energy stocks slumped amid rising borrowing costs with higher rates and soaring development costs with supply-chain issues. Despite constantly growing renewable energy installations, the Morningstar category of sector equity alternative energy funds, which also includes ETFs, posted negative average returns of -11% in 2022 and -10.
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