Clean Energy ETFs up, Oil and Gas ETFs Down Following COP-28 Climate Summit

This year’s lackluster performance of clean energy stocks has been a cause for concern for many analysts. The sector, whose companies are significantly impacted by fluctuations in interest rates, heavily depends on financing projects that do not yield considerable cash flows in their initial years. Consequently, an upward trend in interest rates can result in increased financing costs and subsequent erosion of profitability for these firms.

Against this backdrop of economic uncertainty yet reassuring inflation data, the sector was boosted by the US Federal Reserve’s announcement that the central bank could start cutting rates in the first half of 2024.

For ETFs investing in the clean energy theme, this development can be considered an early Christmas gift. Over the course of just one week, figures sourced from Trackinsight reveal that Alternative Energy ETFs climbed 6.06% with those within the sub-sectors of Solar Energy and Wind Energy surging by 10.61% and 3.43% respectively.

In stark contrast with their renewable counterparts, fossil fuels performed poorly. Contributing factors such as the oversupply of natural gas and oil, purchases of “loophole” products - countries that have banned the direct import of Russian oil can import products refined from Russian oil, provided the refining is done in a third country - combined with a weakening dollar, caused a dent in the conventional energy sector's performance with losses of 0.42% for the week. The WTI crude oil price remained virtually unchanged (+0.28% week-over-week after seven consecutive weeks in the red).

Specifically, Crude Oil ETFs slipped 0.17% whilst Natural Gas ETFs took a nosedive with losses of 4.52% over the week.

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