Clean energy ETFs are bracing themselves for another challenging year in 2024 as the factors that contributed to their poor performance in 2023 look set to continue. Despite a strong year for some tech-focused ETFs, the clean energy megatrend struggled due to oversupply in certain sectors and sensitivity to interest rates.
One of the notable casualties of this struggle was the iShares Global Clean Energy UCITS ETF (INRG), which sank to three-year lows in 2023, ending the year down 20.5%. This marked the third consecutive year of negative returns for INRG after a remarkable 144.3% gain in 2020 fueled by optimism surrounding renewable energy investment.
However, INRG was not alone in its struggles. Most clean energy ETFs posted double-digit losses for 2023, leaving many experts skeptical about the outlook for the theme in 2024. The headwinds that plagued the sector in the previous year remain firmly in place, and the underwhelming performance of clean energy ETFs so far this year has dampened hopes of a quick recovery.
Last year’s lows were attributed to interest rates on the utility side and an oversupply in sectors like solar, resulting in falling prices. Many clean energy companies suffered from fixing their energy selling prices too early in their long-term contracts, before projects even began. Additionally, a surge in solar orders in 2020 led to a market oversaturation in 2023 and subsequent price drops.
While the demand for clean energy continues to grow at a robust pace, it has not yet caught up with supply enough to reverse the fortunes of the sector. Although there are signs that the negative momentum is slowing down, it remains unclear whether demand will be strong enough to boost solar prices and turn the tide for clean energy companies.
Given these ongoing challenges, BlackRock’s thematic outlook paper for 2024 did not include INRG, and clean energy only accounted for 1% of its BGF Multi-Theme Equity fund. The uncertainty surrounding interest rates adds to the cautious outlook for the market.
As the sector navigates another difficult year, it is clear that clean energy ETFs will need to overcome multiple hurdles to regain their footing. While the long-term prospects for clean energy remain promising, investors should exercise caution and monitor the evolving dynamics that impact the performance of these ETFs.
1. What were the factors that contributed to the poor performance of clean energy ETFs in 2023?
– The poor performance in 2023 was primarily due to oversupply in certain sectors and sensitivity to interest rates.
2. Which clean energy ETF experienced significant losses in 2023?
– The iShares Global Clean Energy UCITS ETF (INRG) sank to three-year lows in 2023, ending the year down 20.5%.
3. Did other clean energy ETFs also struggle in 2023?
– Yes, most clean energy ETFs posted double-digit losses in 2023, indicating a challenging year for the sector as a whole.
4. What were the reasons behind the low performance of clean energy ETFs?
– One of the main reasons was the oversupply in sectors like solar, leading to falling prices. Clean energy companies also suffered from fixing their energy selling prices too early in their long-term contracts, before projects even began.
5. Is there hope for a quick recovery in the clean energy sector?
– The underwhelming performance of clean energy ETFs in 2023 has dampened hopes of a quick recovery. While there are signs that the negative momentum is slowing down, it remains unclear whether demand will be strong enough to boost solar prices and turn the tide for clean energy companies.
– Clean energy ETFs: Exchange-traded funds that focus on investing in companies involved in clean and renewable energy sources.
– Megatrend: A significant and long-lasting trend that has the potential to impact various industries and sectors.
– UCITS: Stands for Undertakings for the Collective Investment of Transferable Securities, which are a type of regulated investment fund in Europe.
– Oversupply: When the supply of a particular product or resource is greater than the demand for it.
– Interest rates: The rates charged or paid for borrowing or lending money, which can affect the attractiveness of certain investments.
– Headwinds: Difficulties or challenges that impede progress or success.
– Market oversaturation: When a market is flooded with too many products or services, leading to decreased prices and competition.
– BlackRock: A global investment management corporation.
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