Wall Street’s idea of investing in climate change means investors are piling into natural gas, the least polluting fossil fuel.
Energy accounted for almost two-thirds of the $8 billion of inflows into sector-based exchange-traded funds this year, according to data compiled by Bloomberg. In the absence of federal mandates for renewables such as wind and solar, much of that money is going into funds that invest in natural gas drillers.
The fuel that produces less pollution than coal and oil is the most obvious beneficiary of global warming, which a White House advisory panel said on May 6 is already blighting the U.S. with coastal flooding, heavier rainstorms and more intense wildfires. The potential for hotter summers and colder winters will raise energy demand, and that suggests higher gas prices.
“They’re predicting more weather extremes,” said Skip Aylesworth, who helps manage $5 billion at Hennessy Advisors Inc. in Boston, including its gas utility index fund. “Weather extremes are good for the energy business. More energy use, better for the earnings.”
Climate change is proving to be a boon for energy investment. On the day the National Climate Assessment report was issued, the 44-company Standard & Poor’s Energy Index reached a record, and $322 million of cash flowed into exchange- traded funds that specialize in energy.
As of yesterday, $5 billion had flowed into energy ETFs this year, 17 times more than in the final quarter of 2013. Energy took 63 percent of the net flow into all sector EFTs.
Policy Benefits
Natural gas companies also will be the first beneficiaries of President Barack Obama’s climate policy, which has consistently discouraged the use of coal without requiring renewables to be used as a substitute, said Stephen Smith, executive director of the Southern Alliance for Clean Energy in Knoxville, Tennessee.
“Natural gas is a potential bridge to new technologies that are green or clean,” said David Mazza, a strategist at State Street Corp. Its Energy Select Sector SPDR Fund is this year’s top performer among sector ETFs, and its SPDR S&P Oil & Gas Exploration EFT ranks third. “That’s had a positive impact on investor interest.”
Gas producers EOG Resources Inc. and Anadarko Petroleum Corp. were the top performers among the S&P 500 after they reported better-than-expected first-quarter earnings on May 5. Nabors Industries Ltd., which drills for oil and gas in North American shale basins, is this year’s best performing stock in the S&P 500.