Thematic Report: Energy Investments

The global energy investment landscape is undergoing a significant transformation, with clean energy investments now outpacing fossil fuels by a considerable margin. According to the World Energy Investment 2024 report, global investment in clean energy is set to surpass $2 trillion in 2024, marking a historic shift in how the world is powering its future.

Key drivers of investment growth

The rapid growth is largely driven by the electrification of transport, which surpassed renewable energy as a growing investment choice, attracting $634 billion in 2023. The increasing adoption of electric vehicles and the expansion of charging infrastructure were pivotal in this shift. Renewable energy, while still a major focus, saw more modest growth, with investment rising by 8% to $623 billion.

Traditional energy still matters

Despite the rapid growth in clean energy investments, the anticipated decline of traditional energy sources, particularly hydrocarbons, has not been as imminent as some expected. Despite the Biden administration's push for renewable energy alternatives, legacy fuels are expected to remain essential even as the transition to cleaner transportation fuels gains momentum.

Electric vehicles and data centers, crucial for technologies like artificial intelligence and cloud computing, will continue to rely on natural gas as a cost-effective and vital energy source.

Since its inception in June 2008, the iShares Global Clean Energy ETF has generally outperformed traditional energy stocks, largely due to shifting political priorities. However, since 2020, traditional energy companies, particularly exploration and production firms, have outpaced clean energy alternatives, suggesting that the transition to new energy infrastructures may take longer than anticipated.

Strategic exposure to the energy sector

It is clear that the energy landscape is rapidly evolving, and investors are increasingly interested in capturing the growth potential of clean energy while still benefiting from the stability and essential role of traditional energy sources. Investors can strategically invest in both sectors.

For those seeking exposure to the clean energy sector, ETFs like the iShares Global Clean Energy ETF (ICLN) offer a broad and diversified approach. ICLN is one of the leading ETFs in the clean energy space, tracking the performance of the S&P Global Clean Energy Index.

ICLN holds a diverse portfolio of approximately 100 companies spread across various sub-sectors like electric utilities (28%), renewable electricity (25%), and semiconductors (11%). This diversified approach helps mitigate risks associated with any single technology or company while still allowing investors to benefit from the growth potential of the clean energy sector as a whole.

Investors looking for exposure to traditional energy can consider the Energy Select Sector SPDR Fund (XLE), an ETF that tracks the Energy Select Sector Index. This ETF offers broad exposure to US energy companies, primarily those involved in oil, gas, and consumable fuels. The ETF focuses on large-cap stocks like Exxon Mobil (XOM), Chevron (CVX), Schlumberger (SLB), and ConocoPhillips (COP).