ETFs linked to energy commodities—funds such as the United States Natural Gas Fund (UNG) and the United States Oil Fund (USO)—have experienced a sharp rise in prices between 25.46% and 18.05%.
Financial advisors and their clients need to be ready for another development in energy ETFs: society’s transition away from dirty fossil fuels like coal into alternative energy sources like solar and wind power.
“It’s important to position for the energy transition as much as it is to position for some future state of energy markets,” said Paul Baiocchi, the chief ETF strategist at SS&C ALPS Advisors. His firm manages both traditional energy-linked products along with ETFs targeting alternative energy markets.
The ALPS Clean Energy ETF (ACES) captures what many believe will be the future of the energy market. The fund owns stocks in renewable energy like solar, wind and bioenergy. It also includes clean technology stocks in the electric vehicle market and energy management and storage.
Interestingly, there’s a massive performance gap opening between traditional energy and alternative energy funds.
During the past year, the ALPS fund has fallen 43.73% in value while the Energy Select Sector SPDR Fund has climbed 54.23%. The dismal performance of alternative energy ETFs can be attributed to investor sentiment, which is moving away from higher risk growth stocks to more value-oriented stocks.
*All performance data is through the February 17, 2022, market close.