Investing in clean energy ETFs could help fight climate change.
The risks of climate change are real and urgent. President Joe Biden is aggressively pushing the U.S. to catch up with the rest of the world on sustainability efforts. So far, there’s little in the way of specifics, other than big gestures of commitment like rejoining the Paris climate agreement. Investors have been scurrying around lately for any sign of what industries may benefit most from government policies, placing bets on everything from electric vehicles to power grid upgrades. One way to tap into the focus on clean energy without picking individual winners and losers is simply to look at one of the clean energy exchange-traded funds, or ETFs, that are out there. These diversified funds offer a simple way to play the broad fight against climate change, both in the U.S. and around the world. Here are seven clean energy ETFs to buy now.
First Trust Nasdaq Clean Edge Green Energy Index Fund (ticker: QCLN)
With nearly $3 billion in assets under management and more than 50 total components, this First Trust fund is an interesting and diversified way to play all things green energy. It’s got an eclectic mix of stocks, from lithium battery play Albemarle Corp. (ALB) to home solar panel provider Enphase Energy (ENPH). It even has electric vehicle icon Tesla (TSLA) sprinkled in for good measure. The fund has surged more than 280% in the last year, thanks in part to the assumptions that the U.S. is going to get serious about climate change, but it has pulled back since its highs earlier this year — which may represent a good entry point for investors. The annual expense ratio is 0.6%, or $60 for every $10,000 invested.
ALPS Clean Energy ETF (ACES)
Slightly smaller at around $1 billion in assets and “only” tacking on about 200% in the last year or so, ACES has roughly 40 holdings and an even wider definition of alternative energy. Consider that its top holding at present is Universal Display Corp. (OLED), a semiconductor company that is focused on efficient LED technology, and its No. 2 holding is Canada-based hydrogen fuel cell company Ballard Power Systems (BLDP). ACES comes with an expense ratio of 0.55%. If you want to tap into alternative energy names you may not find on your own, ACES is an interesting fund to consider.
iShares Global Clean Energy ETF (ICLN)
This iShares fund is among the most liquid and well-established clean energy ETFs out there. The fund debuted in 2008, and it currently has more than $5 billion in assets under management. It holds all manner of clean energy stocks, from U.S.-based hydrogen fuel cell company Plug Power (PLUG) to European electric utility Verbund that is a leader in hydroelectric dams and wind power technology. ICLN has an expense ratio of 0.46%. There are only 33 total holdings in this ETF, but they make up a great mix of renewable energy plays around the globe. Shares have drawn back from recent highs, but this high-flying fund remains up 180% in the last 12 months.
Invesco WilderHill Clean Energy ETF (PBW)
An even more dramatic profit generator for investors lately is this Invesco fund that has tacked on more than 300% in the last year. PBW offers investors access to a diversified list of about 58 top clean energy stocks for an expense ratio of 0.7%. Solar stocks play a big role here, including companies such as U.S.-based SunPower Corp. (SPWR) as well as China solar stocks like Daqo New Energy Corp. (DQ) among the top positions at present. However, considering the important role this subsector of clean energy will play in the transition to a sustainable future, that is probably a plus for many investors and not a negative.
Invesco Solar ETF (TAN)
Of course, if you like solar energy stocks, you can go all-in on this narrow segment of the green energy market with this dedicated solar ETF. With only about 55 holdings in its portfolio — such as SolarEdge Technologies (SEDG) and First Solar (FSLR) — TAN is laser-focused on the subsector of solar stocks. This targeted approach hasn’t stopped it from finding a popular niche among investors, however, as this clean energy ETF boasts more than $3 billion in assets to top some of the more diversified offerings on this list. One reason for this popularity may be performance, with returns of about 300% in the last year. The fund also comes with an expense ratio of 0.69%.
First Trust Global Wind Energy ETF (FAN)
While many investors may imagine solar cells when they think of clean energy, wind power is a very substantial piece of the green energy ecosystem. Consider that wind power now accounts for more than half of the U.K.’s power generation. Anyone who has been to London knows that it may be risky to depend on a lot of sunshine to power homes and businesses, so wind is a great alternative energy for the nation and other regions around the world. Since the U.S. is only getting its feet wet on alternative energy, FAN is largely powered by overseas names such as Denmark’s Vestas Wind Systems A/S. The fund is smaller than others on this list, at just more than $400 million in assets, and it has an expense ratio of 0.61%. If and when the U.S. follows Europe’s lead, investors can expect these world-class companies to participate here as well as in their home markets as demand ramps up.
Global X Autonomous & Electric Vehicles ETF (DRIV)
The final ETF on this list is a quirky play on alternative energy, with a primary focus on electric cars and related battery technology. Though not quite the same as big wind turbines or solar farms, electric vehicles are undoubtedly a dynamic industry that has an important role to play in the fight against climate change. This Global X fund has all the big names you’re looking for in this sector, including Tesla, Plug Power and Chinese electric vehicle giant Nio (NIO). Its portfolio also holds some legacy automakers such as Toyota Motor Corp. (TM) and tech companies such as Google-parent Alphabet (GOOGL), but if your biggest alternative energy interest is electric cars and lithium battery technology, then these additional stocks are simply a diversified way to play this clean tech megatrend. DRIV comes with an expense ratio of 0.68%.
Seven clean energy ETFs to buy now:
— First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
— ALPS Clean Energy ETF (ACES)
— iShares Global Clean Energy ETF (ICLN)
— Invesco WilderHill Clean Energy ETF (PBW)
— Invesco Solar ETF (TAN)
— First Trust Global Wind Energy ETF (FAN)
— Global X Autonomous & Electric Vehicles ETF (DRIV)
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Update 03/24/21: This story was published at an earlier date and has been updated with new information.