Reading through my daily news feed, there is never a shortage of climate change coverage.
We all know about the efforts to make energy production “greener.” It’s already happening.
Nailing down a timeline is much harder. Global leaders met this week at the COP26 climate conference in Glasgow to discuss clean energy efforts around the world.
It led to promising headlines, such as:
- “Leaders Commit to 30% Methane Cut at Climate Summit.”
- “Several Countries Pledge to Phase Out Heavily Polluting Coal.”
- “COP26 Climate Change Summit: So Far, So Good-ish.”
It seems like the world’s most powerful nations want to change how we produce and consume energy. But getting there will take time.
So, how can we invest in the future of clean energy when old energy like fossil fuels and coal are still major players?
Here’s an idea…
Old Energy vs. New Energy
There is an obvious demand for clean energy like solar, wind or hydroelectric options. But overall, energy demand is increasing, and that means we’ll still rely on old energy sources for years to come.
You can see in the chart below that petroleum, and natural gas accounted for 69% of energy consumption in the U.S. in 2020, according to U.S. Energy Information Administration.
Renewable energy accounted for 12% of energy consumption. That’s a sizeable chunk that beat out nuclear power and coal, but it’s still well below fossil fuels.
Renewable energy supply will grow by 35 gigawatts from 2021 to 2022, according to Matthew Boyle, an energy expert at S&P Global Platts. In that same time, global power demand will grow by 100 gigawatts.
So, countries will have to rely on old energy sources to fill that 65-gigawatt gap in demand.
This got me thinking about ways to invest in both sides of the trend. And one of the easiest ways is through exchange-traded funds (ETFs).
Energy ETFs Play Both Sides of the Trend
ETFs offer broad exposure to an investing trend or sector of the market. They allow us to invest in an idea without the stress of individual stocks.
Plenty of ETFs focus on energy. I want to focus on two of the bigger funds today: the Energy Select Sector SPDR Fund (NYSE: XLE) and the VanEck Vectors Low Carbon Energy ETF (NYSE: SMOG).
Investing in both of these funds covers both “old energy” and renewables.
And both performed well over the last year.
SMOG beat the S&P 500 by just over 9%. Its net assets total $330 million, and its top holdings include Tesla Inc. (Nasdaq: TSLA) and NextEra Energy Inc. (NYSE: NEE).
If you invested $1,000 in an S&P 500 index fund, it would be worth $1,373 today. If you put that same amount in the SMOG ETF, you’d have $1,465.
But old energy is crushing renewables at the moment! XLE is up 94% in the same time. It more than doubles the S&P 500.
Investing $1,000 a year ago into XLE would be worth around $1,940. That’s almost a doubling in just one year!
XLE maintains a classic approach to energy. Its largest holdings include Big Oil names Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). In fact, most of its top 10 holdings (which make up 76% of its total portfolio) deal in fossil fuels.
Bottom line: Clean energy is the future, but old energy isn’t going anywhere. And energy demand will remain elevated as the world continues to return to normal.
We’re entering a busy holiday season with plenty of people traveling to make up for lost time during 2020’s COVID-19 lockdowns.
Why choose sides? Investing in both old and new energy trends through a fund is a lucrative way to cover all the bases.
You can see that both XLE and SMOG beat the overall market over the last year, and I think that will happen again over the next 12 months.
Now, if you want to go beyond a broad energy approach using an ETF, I suggest joining chief investment strategist Adam O’Dell in his premium research service Green Zone Fortunes.
Adam has recommended energy stocks for the model portfolio, including:
- An old energy company that has gained 57% since his recommendation in March 2021.
- An automaker developing new battery tech that will make electric vehicles more efficient.
- A clean energy leader that will benefit from the upcoming $1.75 trillion infrastructure bill.
For the details on how you can access these stock tickers, go here to watch Adam’s “Imperium” presentation now. You find out about genomics, Adam’s No. 1 stock mega trend of the next decade.
You’ll have the opportunity to join his Green Zone Fortunes subscribers and get Adam’s highest-conviction stock recommendation … every month.
Best investing,
Chad Stone
Assistant Managing Editor, Money & Markets