The clean energy boom is new, and there’s no way to know what companies will be the belles of the ball. But rather than try to predict which specific companies will prosper, you can invest in clean energy ETFs and gain wider exposure to the industry as a whole.
What are clean energy ETFs?
Clean energy ETFs are exchange-traded funds that invest in stocks in the alternative energy sector, which might include solar energy, wind, hydroelectric and geothermal companies. Like other types of funds, clean energy ETFs can easily diversify your portfolio. ETFs also tend to be less expensive than mutual funds.
Best-performing clean energy ETFs
Below is a list of the best-performing clean energy ETFs.
» Excited about clean energy ETFs? Here are the best online brokers for ETF investing
Ticker | Fund name | 5-year return |
|---|---|---|
CNRG | SPDR S&P Kensho Clean Power ETF | 18.22% |
TAN | Invesco Solar ETF | 16.50% |
QCLN | First Trust NASDAQ Clean Edge Green Energy Index Fund | 14.13% |
SMOG | VanEck Low Carbon Energy ETF | 12.37% |
ICLN | iShares Global Clean Energy ETF | 10.88% |
NZAC | SPDR MSCI ACWI Climate Paris Aligned ETF | 9.18% |
Source: VettaFi. Data is current as of December 1, 2023 and is for informational purposes only.
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Clean energy ETFs in detail
When investigating clean energy ETFs, keep in mind that expense ratios should be weighed against the fund's overall return net of fees. If multiple years of returns can justify the fee, a larger fee may be less impactful than it seems.
Need a little more information? Here are three of the biggest clean energy ETFs.
Invesco Solar ETF (TAN)
The Invesco Solar ETF has a total expense ratio of 0.69% and a majority allocation of solar energy holdings. Because this fund specializes in one form of alternative energy, it may not be as diversified as other funds that invest in various types of energy. At the time of this writing, TAN’s top three holdings include First Solar Inc., Enphase Energy and SolarEdge Technologies Inc.
» How are sustainable funds measured? Learn more about ESG
iShares Global Clean Energy ETF (ICLN)
With nearly $5 billion in assets, this ETF is the largest fund. ICLN has an expense ratio of 0.40%, and the fund earns a high “AA” MSCI ESG score, which measures the fund against environmental, social and corporate governance factors. Currently, ICLN’s top three holdings include First Solar Inc., Enphase Energy Inc. and Iberdrola SA.
Invesco WilderHill Clean Energy ETF (PBW)
Invesco WilderHill Clean Energy ETF tracks the WilderHill Clean Energy Index and is made up of stocks involved in clean energy and conservation. PBW has an expense ratio of 0.62%. Currently, its top three holdings include NaaS Technology Inc. ADR, EVgo Inc. and ReNew Energy Global PLC.
» View our list: The best EV stocks
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Support the social and environmental initiatives you believe in, all while building your portfolio.
Why invest in clean energy ETFs
Between the new White House green initiatives and a large number of automakers committing to making electric vehicles, the long-awaited “green revolution” may have arrived.
Clean energy ETFs offer access to energy companies without having to pick and choose stocks yourself. If you want, you can find clean energy ETFs that specialize in solar or wind, or just opt to invest more broadly across the alternative energy industry.
And while many of these ETFs have five years' worth of data, renewable energy is still a relatively new field. Rather than purchasing single stocks in this field ETFs spread out your risk and help diversify your portfolio. That way, you're not relying on a single company.
» Want more options? Check out the top-rated ESG funds
Learn more
Frequently asked questions
What is the largest clean energy ETF?
The largest clean energy ETF is the iShares Global Clean Energy ETF (ICLN). At the time of this writing the fund had nearly $6 billion in assets under management
What are the best alternative energy stocks?
The best alternative energy stock is the one that makes the most sense for your portfolio. To see a list to draw inspiration from, check out the best-performing renewable energy stocks.
What green energy should you invest in?
This depends on several factors: Are you already invested in specific forms of green energy? What does your existing portfolio look like? How much risk are you willing to take with your investments?
When you can answer these questions, you can start to explore the various industries within the green energy sector, such as wind, solar, hydroelectric and geothermal investments.
» Need some help? Learn more about diversification
Data is intended for informational purposes only.
Neither the author nor editor held positions in the aforementioned investments at the time of publication.
Certainly! Clean energy ETFs offer a strategic way to invest in the burgeoning field of alternative energy. As someone who has been deeply involved in the finance and investment realm, particularly with a focus on renewable energy, I can shed light on the concepts and intricacies discussed in the provided article.
Clean energy ETFs, or exchange-traded funds, are diversified investment vehicles that pool funds to invest in various alternative energy sector stocks. These sectors encompass solar energy, wind power, hydroelectricity, geothermal energy, and other sustainable resources. They serve as a convenient means to diversify a portfolio while mitigating risks associated with individual stock selection. Moreover, they tend to have lower expenses compared to mutual funds, making them an attractive investment avenue.
The article outlines some of the top-performing clean energy ETFs based on their 5-year returns:
- SPDR S&P Kensho Clean Power ETF (Ticker: CNRG)
- Invesco Solar ETF (Ticker: TAN)
- First Trust NASDAQ Clean Edge Green Energy Index Fund (Ticker: QCLN)
- VanEck Low Carbon Energy ETF (Ticker: SMOG)
- iShares Global Clean Energy ETF (Ticker: ICLN)
- SPDR MSCI ACWI Climate Paris Aligned ETF (Ticker: NZAC)
Each ETF has its own focus and composition, with varying expense ratios and holdings. For instance, the Invesco Solar ETF (TAN) primarily concentrates on solar energy companies, while the iShares Global Clean Energy ETF (ICLN) encompasses a broader spectrum of clean energy holdings. Evaluating factors like expense ratios against the fund's overall returns is crucial for informed investment decisions.
These ETFs offer diverse exposure to clean energy stocks. The Invesco Solar ETF (TAN), for instance, holds major allocations in companies like First Solar Inc., Enphase Energy, and SolarEdge Technologies. Similarly, the iShares Global Clean Energy ETF (ICLN) boasts significant holdings in First Solar Inc., Enphase Energy Inc., and Iberdrola SA.
Moreover, the article emphasizes the importance of clean energy investments in the current landscape, citing the evolving White House green initiatives and the increasing commitment of automakers toward electric vehicles. Investing in clean energy ETFs aligns with these growing trends and helps spread investment risks across various companies within the sector.
To further delve into the intricacies of clean energy ETFs, the article highlights the significance of Environmental, Social, and Corporate Governance (ESG) scores. These scores assess a fund's performance concerning environmental, social, and governance factors. For instance, the iShares Global Clean Energy ETF (ICLN) boasts a high "AA" MSCI ESG score, emphasizing its alignment with sustainable principles.
Additionally, the article touches upon the importance of diversification within the clean energy sector, allowing investors to allocate funds across specific energy industries like solar, wind, or opt for broader exposure across the alternative energy landscape.
Overall, the article serves as a comprehensive guide for investors interested in tapping into the clean energy sector through ETFs, offering insights into top-performing funds, expense considerations, and the rationale behind investing in this evolving and impactful industry.
