Clean Energy Funds Struggle After a Chaotic Year

Clean energy ETFs continue to suffer in early January, after a very difficult year in 2023. The increasing uncertainty about when the Federal Reserve intends to start cutting interest rates is weighing heavily on this investment theme.

Market expectations were initially high for the Federal Reserve to commence policy easing in March, but these hopes have been tempered by the minutes of the FOMC meeting, held Dec. 12-13. Several policymakers observed that economic conditions might change in a manner that justifies maintaining the Fed-funds rate at its current level of 5.25%-5.50% longer than had been initially expected. This implies that a rate cut in March is looking less probable.

As a result of the announcements, Alternative Energy and Solar Energy ETFs took a nosedive, losing 3.93% and 8.76% respectively with Alternative Energy recording negative flows. As a reminder, they had already plummeted 21% and 28% last year.

Illustrating this trend, the Invesco iShares Global Clean Energy UCITS ETF (DNRG) and L&G Clean Energy UCITS ETF (RENW) declined by 3.98% and 4.00% over the week.

Clean energy funds, which rely heavily on borrowed capital due to the substantial upfront investment required for renewable projects, could face even greater challenges if rates remain high over the longer term.

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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.