Energy Transition and International Portfolio Allocation: Evidence From Global Mutual Fund Holdings

ABSTRACT

This paper examines how global energy transformation influences international portfolio allocation through country‐level energy characteristics. Using global holdings data of active equity mutual funds, I find that funds allocate significantly less capital to countries with higher electricity intensity. The effect is weaker in countries with greater renewable energy penetration and stronger environmental policies, suggesting that investors consider both energy dependence and adaptive capacity when allocating capital. Further analyses show that higher electricity intensity predicts weaker subsequent performance and lower investor flows. Overall, the findings highlight the role of energy‐transition adjustment costs in shaping global capital allocation.