Australian clean energy exchange-traded funds (ETF) have been some of the worst-performing products for the second year in a row, according to new data from Global X.
Looking at the worst-performing ETFs for the last calendar year, the Betashares Solar ETF (TANN) and VanEck Global Clean Energy ETF (CLNE) both landed in the top five.
In conversation with InvestorDaily, investment strategist Marc Jocum explained that a stubborn macro environment has left many long-duration growth stocks, such as clean energy-oriented companies, picking up the pieces.
“Even though central banks have begun implementing interest rate cuts this year, which could have bolstered clean energy ETFs, the theme hasn’t really recovered yet, and that’s why it’s still sitting amongst last year’s worst-performing ETFs for a consecutive year,” Jocum said.
“The previous higher-for-longer interest rates have really hit a lot of these energy transition companies quite hard, because a lot of them carry large amounts of debt.”
“So whilst there has been a bit of an oversupply issue overall, when you’ve got a very infant, young, capital-intensive industry, they really struggle with high interest rates, so that’s been a big impact to a lot of these companies’ bottom line.”
According to Jocum, the main takeaway is that clean energy companies – often characterised as young and growth-focused – would likely thrive in a low-interest rate environment, but the impact of higher borrowing costs has weighed heavily on their earnings, and ultimately, their share price performance.
“With global interest rates showing signs of easing and the journey to net zero being a key focus globally, a recovery may be on the horizon over the coming years.”
And while the investment strategist hasn’t ruled out a third consecutive year of clean energy ETFs nearing the bottom of the popularity scale, he suspects that losses won’t be as pronounced as they have been over the last 24 months.
“There still is this reliance on renewable energy, we’ve had a lot of support for certain pockets of renewable energy,” Jocum said, adding that areas of the clean energy pool, particularly those with political support, could see a boost in the coming months.
“If the Liberal Party comes in this year, things like nuclear energy, or even copper mining as well, could be quite interesting,” he said.
Last year, the investment strategist similarly highlighted these as key themes to watch in 2025.
Namely, as the AI-powered data centre real estate boom continues, copper mining and nuclear energy are expected to come to the forefront.
“To power the amount of energy that comes out of these data centres, one gigawatt of data requires 65,000 tonnes of copper. So you’re talking about a lot of gigawatts coming out of these data centres, and you’re going to need a lot of copper to power that,” Jocum told InvestorDaily last year.
Similarly, he highlighted a trend observed among mega-cap tech companies, which are opting to build their data centres adjacent to nuclear facilities.
At the start of 2024, a leading cloud service provider acquired a 960-megawatt data centre campus located next to and directly powered by a nuclear power plant in Pennsylvania. The high-profile deal sparked significant interest, prompting several utilities to explore similar partnerships.
