Are green energy commodities the new “safe haven” for investors?

So far, 2023 hasn’t brought any respite from the economic turmoil we’ve been living through for the past few years. On the contrary, the sudden collapse of Silicon Valley Bank (SVB) in March 2023 accelerated the “flight to quality” from stocks and shares into safe haven investments.

While traditional investments like gold and cash funds have seen plenty of inflows, the increasing importance of the green energy sector has also attracted investor attention. Green energy stocks, electric vehicle (EV) ETFs, and commodity ETFs like CHRG, – which some might term a copper ETF and which tracks copper stocks and other materials that are vital for green energy infrastructure and EVs, – could be the next safe haven investment as the sector experiences a once in a 100 year transition to material intensive energy and away from fossil fuels.

2023 stimulated inflows into perceived safe haven stocks

The first quarter of 2023 saw significant inflows into safe haven commodities, due to the flight to quality amid market downturns. Investors are still concerned about volatility, with widespread expectations that the Federal Reserve will raise interest rates again in May and that it will have unpredictable consequences[1].

March saw investors flock to gold after the collapse of SVB, reversing a 9-month trend of outflows. According to a report by the World Gold Council, 32 tons of precious metal, worth $1.9 billion, flowed into global gold-backed exchange-traded products in March alone. “Lower yields, a weaker dollar and safe-haven buying lifted the gold price in March by 9%, fueled by the recent banking industry crisis,” said analysts.[2] Overall, global gold ETF total assets under management (AUM) rose by 10% to US$220 billion by the end of March.[3]

Bitcoin also enjoyed perceived safe-haven inflows in Q1 2023[4], while a survey by CNBC found that cash is now the preferred safe haven on Wall Street. 60% of Wall Street investors said that cash funds are their top choice in today’s uncertain markets, and assets in money market funds rose to a record $5.2 trillion by the end of the quarter.[5]

Energy has typically been seen as another safe haven, but the sector’s performance was mixed. According to Bloomberg, the U.S. Energy sector is underperforming compared to the Broad Global Market US Index[6]. At the same time, the Allianz Group’s chief economic advisor, Mohamed El-Erian, warns that the financial markets are going through a transition where there are no entirely safe haven investments[7].

Rising green energy sector could offer a new safe haven

Safe haven investments may extend beyond gold and cash. The green and alternative energy sector has been growing consistently in recent years, showing significant growth and potential for returns. As fossil fuels fall from favor, the shift from a fuel-intensive energy system to a material-driven energy system underpinned by the green energy expansion, could offer investors a new source of returns in their energy portfolio by investing in the commodities required for this shift.

Investors have taken note of the accelerated government investment in clean energy production. In the US, the recent Inflation Reduction Act (IRA) outlines $369 billion of investment in green energy[8], and according to the Energy Policy Tracker, 2020-2021 saw G20 governments commit at least $326.13 billion for potentially clean energy and over $204.11 billion for other green energy[9].

Meanwhile, consumer demand for sustainable power isn’t going away. The catastrophic damage caused recently by floods, drought, wildfires, and intense heat helps to focus public awareness around the need to cut carbon emissions and replace polluting traditional energy with power from environmentally-friendly sources. Combined with supply concerns in the context of Russia’s Ukraine invasion, these trends are helping coalesce interest around investments in the green energy sector.

Green energy relies on copper

A handful of key materials form the foundation of the entire green energy sector, and these are emerging as an alternative safe haven commodity. Copper, in particular, is showing many encouraging signs. Copper is vital for electric wiring for green energy infrastructure; wind turbines, solar panels, electric vehicles, and other linchpins of a clean energy ecosystem all rely heavily on copper.

Today, we believe copper meets the main characteristics of a safe haven asset: it’s highly liquid, has functional uses, enjoys considerable value permanence, has inelastic and growing demand, and is in limited supply.[10] Copper demand is expected to double from 2022 to 2035, thanks to the transition to a lower carbon economy, but the commodity trader Trafigura warns that stores of copper are dangerously low, while stricter environmental laws make it harder to open new mines[11].

Analysts at The Motley Fool note that “this outlook bodes well for the copper industry,[12]” and in December 2022, Goldman Sachs suggested that copper prices could reach record high prices of $11,000 per ton in 2023[13]. It’s generally expected that while short-term price spikes will be quickly resolved, the overall value of the copper market will increase slowly but steadily over the next decade or more.

Invest in green energy sector with a copper ETF

The global transition to green energy requires masses of copper in the form of electric vehicles, energy storage infrastructure, wind turbines and solar panels, and thousands of miles of copper wiring, at the same time as supply is limited and the prospects of increasing the supply chain are slim. The last quarter has highlighted the ongoing demand for safe haven investments, so this could be the moment for copper stocks to shine.

However, it’s hard to know the best way to invest in copper. While the sector as a whole is seen as a stable investment, many individual copper stocks are still highly volatile. One option is to buy into a commodities ETF like CHRG. CHRG is a batteries commodity ETF that tracks the raw materials needed for the green energy ecosystem, including copper, lithium, and nickel.

An ETF like CHRG offers an actively managed, low cost and convenient way for retail investors to invest in a basket of the core green energy metals sector in a single purchase, and diversify their energy allocation to include this dynamic and fastest growing energy sub-sector.

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[1] “Gold ETFs see first inflows in 10 months as banking crisis sparks safe-haven buying” April 10, 2023

[2] “Gold ETFs see first inflows in 10 months as banking crisis sparks safe-haven buying” April 10, 2023

[3] “Gold ETF Flows: March 2023” April 6, 2023

[4] “Bitcoin Breaches a Major Resistance to Form a Fresh 9-Month High on Safe-Haven Inflows and Goldilocks CPI” March 14, 2023

[5] “Investors believe the stock market is set for losses, and cash is best safe haven, CNBC survey shows” March 31, 2023

[6] Bloomberg Sector Performance, accessed May 2, 2023

[7] “Mohamed El-Erian: 10 Insights for Advisors When There’s ‘No Safe Haven'” May 27, 2022

[8] “Biden’s Inflation Reduction Act makes green hydrogen profitable at scale, Goldman Sachs says” November 30, 2022

[9] Energy Policy Tracker — G20 Countries. Updated December 31, 2021

[10] “A guide to trading safe-haven assets” May 19, 2022

[11] “5 Copper Stocks For 2023 And Beyond” December 20, 2022

[12] “Investing in Copper Stocks” April 26, 2023

[13]  “5 Copper Stocks For 2023 And Beyond” December 20, 2022

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