Clean Energy versus Fossil Energy ETFs

Clean energy funds invest in alternative power sources such as hydroelectric, solar, wind, and geothermal. There has been an exponential increase in assets under management invested in socially responsible and clean funds; the negative impact of fossil fuels on the climate and health, higher government subsidies, and advancements in technology have made alternative energy sources more feasible. This article looks at the absolute and risk-adjusted performance of clean energy exchange-traded funds (ETFs) since their inception and compares them with their fossil fuel counterparts. We also compare both categories to the US (IVV) and developed-world ex-US (EFA) stock market ETFs. The absolute and risk-adjusted performance of fossil energy and clean energy portfolios was inferior to IVV and EFA. However, fossil fuel ETFs have slightly outperformed clean energy ETFs. Even factor models such as capital asset pricing model and Carhart four-factor model indicate that a clean energy portfolio has significantly negative alphas. Overall, there is no evidence for superior performance of clean energy ETFs.