How Sustainable Is the Rally in Renewable Energy Stocks?

Solar and wind power companies have soared in value. Are they in a bubble or in a virtuous upward cycle?

By Norm Alster

The overall stock market was fabulous last year but as investors focused on climate change, renewable energy stocks did even better.

Consider that while the SPDR S&P 500 Exchange-Traded Fund Trust which tracks the benchmark S&P 500, returned 18.37 percent in 2020, the Invesco Solar E.T.F., which tracks an index of solar energy stocks, soared 233.95 percent, according to Morningstar Direct. The Invesco WilderHill E.T.F., which invests more broadly in alternative energy of various types, rose 204.83 percent.

Returns like those are so strong that they are unlikely to be replicated: It is possible that the stocks of companies engaged in carbon-free energy production are already in a bubble. Jason Bloom, head of fixed income and alternative E.T.F.s for Invesco, describes the sector this way: “I would call it rational optimism in view of improving fundamentals.”

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