The world is pushing toward a clean energy future and Wall Street is following along for the ride. But should you invest in renewable power stocks right now? Here's what one big North American energy company is doing and what it says about the broader clean energy sector.
Hot, hot, hot
Shares of master limited partnership (MLP) NextEra Energy Partners, which invests heavily in clean energy assets like solar and wind power, are up 175% over the past five years. Parent NextEra Energy, a giant U.S. utility with material clean energy exposure, is up 155%. Real estate investment trust (REIT) Hannon Armstrong Sustainable Infrastructure Capital, which helps finance renewable power projects, has seen a stock increase of 190% over the same time frame. And Brookfield Renewable Partners, another clean energy-focused MLP run by Canadian asset manager Brookfield Asset Management, is up around 170%. Over the same period, the S&P 500 index, using SPDR S&P 500 ETF Trust as a proxy, has gained roughly 95%.
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Those are pretty impressive numbers for sure, and they highlight the fact that the renewable power sector has been outperforming. That's great, but the problem is that hot sectors tend to draw increasing competition. That, in turn, brings down the returns as more companies are competing over projects -- which is exactly what Canada's Enbridge (NYSE:ENB) is warning about recently.
During Enbridge's fourth-quarter 2020 earnings conference call, management explained: