Cleaning Up with Clean Energy ETFs

The regulatory backlash against Big Oil may benefit alternative energy providers

Morningstar ETF Analysts 5 July, 2010 | 3:26PM
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The April 20 Deepwater Horizon explosion in the Gulf of Mexico and the seemingly unstoppable flow of oil from the ocean floor is turning into one of the greatest environmental catastrophes of modern times. The full implications of the disaster will not be known for years, but there is little doubt that there will be far-reaching economic consequences as outrage over the environmental damage will demand political action. A regulatory backlash against offshore drilling has already begun, with US President Barack Obama placing a six-month moratorium on offshore permits and Norway halting new deepwater drilling in the North Sea.

Concerns about carbon dioxide from fossil fuels contributing to climate change already produced strong support for alternative energy sources around the world. Most developed nations already provide research and purchase subsidies to push these new technologies forward. With the increased difficulty of accessing hydrocarbon fuels like oil and gas, ‘clean’ energy like wind, solar or even nuclear power becomes even more viable. However, we are still in the early stages of commercialising most of these alternative energy sources. Without the foresight to pick winners among these alternative technologies, a diversified ETF is a good way to invest in the trend towards clean energy.

Since the accident, BP’s stock price has been hammered, falling well over 40% compared to about a 10% decline in the FTSE 100 index. Over that same timespan, the returns on the seven clean energy ETFs available in Europe have been between -4.5% and -16.6%, all of them bettering the returns on the STOXX 600 Oil and Gas Index. While the evidence so far suggests that Big Oil’s loss is alternative energy’s gain, the real investment opportunity is over the long-haul as societies transition to reduced carbon emissions and more sustainable energy sources.

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Morningstar ETF Analysts  research hundreds of ETFs available to European investors. The Morningstar Rating for ETFs is based on a risk-adjusted performance measure.

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