Clean Energy Funds Navigate Rough Waters Amid Rising Rates

Clean Energy ETFs Slump for Third Consecutive Week

The clean energy sector has been riding through a storm over the last three weeks, facing a series of setbacks that have led to consecutive weekly losses. This period of instability culminated in double-digit declines across January for various clean energy funds. Specifically, funds focusing on Alternative Energy, Solar Energy, and the Hydrogen Economy witnessed weekly drops of 5.35%, 7.84%, and 4.67%, respectively, with the downturn pulling year-to-date performances down to -11%, -19%, and -9%.

High yields continue to weigh down on Clean Energy ETFs

A key factor exacerbating the challenges faced by clean energy funds is the recent uptick in interest rates. Notably, the US 10-year Treasury yield surged by 18 basis points in a week, climbing to 4.13% from 3.95%. Higher Treasury yields often curb investor appetite for stocks and other risky assets by tightening financial conditions as they raise the cost of credit for companies and individuals. In a higher rate environment, investors typically shift towards more attractive fixed-income assets.

The effects of this financial environment were starkly visible in the performance of several leading clean energy ETFs. The Invesco Solar Energy UCITS ETF (ISUN), the L&G Clean Energy UCITS ETF (RENW) and the L&G Hydrogen Economy UCITS ETF (HTWO) lost 7.83%, 4.97%, and 4.27% respectively week over week.

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Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.