Even as the tumble in oil prices pummels the industry, one small â€" and perhaps surprising â€" group of energy stock funds has held up better than its peers: those investing in solar, wind and other alternative-energy sources.
It's an unexpected bright spot because alternative-energy stocks long have been known as some of the riskiest in an area that's already prone to big swings. The group historically has shown flashes of promise, only to plummet in disappointment. Alternative-energy stocks often have struggled when the price of oil was falling. The S&P Global Clean Energy index plunged 66 percent in 2008, more than the broad stock market or the price of oil.
In the past year, though, alternative-energy stocks generally have proved to be the steadier ride. An exchange-traded fund tracking the S&P Global Clean Energy index is down about 4 percent in the past 12 months, a milder drop than the 54 percent plunge in oil or 18 percent for Exxon Mobil. It's the latest sign of maturation for alternative-energy stocks.
"The whole industry feels like it's about to move to being a grown-up, real industry, where we won't have such high volatility," says Edward Guinness, portfolio manager of the Guinness Atkinson Alternative Energy fund. His fund has lost roughly 6 percent in 2015, but that's better than 91 percent of the other energy funds in its category.
To be sure, investing in alternative-energy funds still can be risky. The industry largely remains dependent on subsidies and government support to drive growth, and a key U.S. tax credit for solar power is set to curtail sharply in 2017.
Clean energy is also a global industry, as much as it's a global issue. That means funds often keep the bulk of their portfolios abroad, opening up U.S. investors to fluctuations in foreign-currency values.
Alternative-energy stocks also remain far below their peaks before the worst of the Great Recession. The S&P Global Clean Energy index, for example, is more than 80 percent below where it was in late 2007.
Still, alternative-energy fund managers remain optimistic, and some say they're not satisfied with just beating other traditional energy stock funds over the past year.
"Yes, we've outperformed the rest of the energy market," says Colm O'Connor, portfolio manager at the Calvert Global Energy Solutions fund. "But we've underperformed the rest of the market, and I think that's unwarranted."
Among the reasons for optimism:
Oil doesn't matter much. For years, alternative-energy stocks often would rise and fall with the price of oil. The thinking was that higher-priced oil would mean more demand for alternative energy, while cheap oil would mean less pressure to develop solar and other new sources of energy.
But that mind-set started to break down a few years ago, for a simple reason: Oil doesn't compete with wind or solar power to fuel U.S. power plants.
Costs are coming down.The alternative-energy industry is getting closer to the point where the electricity that it produces is the same price as power generated from traditional sources. When prices are comparable, the industry won't need subsidies and can become a much healthier competitor. In some areas of the world, that's already beginning.
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