Here’s how to position a green portfolio amid record summer heat.
With historic heat waves, raging wildfires and massive floods, the worldwide effects of climate change are becoming more apparent than ever. Many investors are looking to gain a footing in clean energy exchange-traded funds, either because of personal principles or simply because they see the profit opportunity there. If you, too, have been watching the news and wondering how you might position your portfolio in green investments, these seven clean energy ETFs offer slightly different ways to invest in this trend.
iShares Global Clean Energy ETF (ticker: ICLN)
This clean energy ETF is among the largest options for individual investors, with more than $6 billion in assets under management. It’s also one of the older funds dedicated to this strategy, established in 2008, when climate change wasn’t quite as urgent for many folks. As the name implies, this is an international fund, with only about 38% of assets in U.S. stocks. Top holdings among the 80 or so picks in this ETF include Danish turbine manufacturer Vestas Wind Systems (VWS) and California-based solar firm Enphase Energy Inc. (ENPH). The fund had an amazing 2020, with roughly 140% gains, but has underperformed in 2021 as things have cooled off for the sector.
First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
Smaller with nearly $3 billion in assets under management and only about 50 total components, this First Trust fund is another popular and fairly diversified way to play clean energy as an investment trend. Its top holdings include electric vehicle manufacturers Tesla Inc. (TSLA) and Nio Inc. (NIO) alongside stocks like the aforementioned solar firm Enphase. This is partially because EVs are part of a clean energy future, but more so because these stocks and their battery technology have applications far beyond the auto industry. The annual expense ratio of 0.6% — or $60 for every $10,000 invested — is a bit higher than other ETFs on this list, but it’s still affordable for many investors.
ALPS Clean Energy ETF (ACES)
With roughly $1 billion in assets, this fund from smaller money manager SS&C ALPS is another option for investors who want a fairly liquid and diversified way to play this trend via green energy ETFs. The fund is focused on a more pure-play exposure to the North American sector, targeting wholly U.S.- and Canadian-based companies rather than foreign holdings via its portfolio of fewer than 50 companies. Despite its small list, the ACES fund takes diversification seriously, with about 26% of assets in solar stocks, 20% in “smart grid” holdings and another 20% in wind-related energy stocks to round out its top areas of focus.
Invesco WilderHill Clean Energy ETF (PBW)
With about 70 holdings and $2 billion in assets, PBW is another substantial clean enery ETF for investors to consider. Though its expense ratio is the highest of the bunch at 0.7%, its longer-term performance is also among the best, with total gains of about 350% in the last five years — more than triple the S&P 500 and double many other funds on this list. That’s in part because PBW has often been a bit overweight in solar stocks, including U.S.-based names, as well as international solar stocks like China’s JinkoSolar Holding Co. (JKS) and India’s Azure Power Global (AZRE), that pop up in its top holdings. Outperformance of solar has, historically, paid off for PBW.
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 marketplace with a dedicated clean energy ETF that’s also provided by asset manager Invesco and commands more than $3 billion in assets under management. With more than 50 holdings in its portfolio including Enphase, SolarEdge Technologies Inc. (SEDG), Sunrun Inc. (RUN) and First Solar Inc. (FSLR), it’s a who’s who of the solar sector. If you’re not afraid of putting all your eggs in one basket within clean energy, TAN is a popular and accessible option.
SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
We’ve talked a lot about including clean energy stocks, but what if you’re simply interested in cutting out oil and coal stocks more than heavily relying on the success of solar or wind companies? In that case, SPYX is a great option. As the name implies, it’s composed of effectively the same stocks normally in S&P 500 index funds — but cuts out any company related to fossil fuels. In other words, top holdings are still megacap tech stocks like Apple Inc. (AAPL), but Exxon Mobil Corp. (XOM) is nowhere to be found. Though that only whittles the list down by a handful of big-name stocks, this approach has become increasingly popular lately, and SPYX currently has $1.2 billion under management.
iShares Global Green Bond ETF (BGRN)
Green bonds are an interesting alternative to the prior equity-focused funds for a few reasons. For starters, they offer a fixed-income perspective on clean energy instead of the risks of the stock market. And second, green bonds can be issued by almost any organization as long as the intention is to spend the capital on expenses related to carbon reduction or a clean energy transition. Top issuers include the French government, along with corporations such as Apple that are looking to reduce their carbon footprint through green buildings or solar arrays to power offices. This is a great way to help finance the green energy transition, both via funding for renewable power plants and as an incentive for companies looking to do their own small part independently.
Seven clean energy ETFs to buy now:
— iShares Global Clean Energy ETF (ICLN)
— First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
— ALPS Clean Energy ETF (ACES)
— Invesco WilderHill Clean Energy ETF (PBW)
— Invesco Solar ETF (TAN)
— SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
— iShares Global Green Bond ETF (BGRN)
More from U.S. News
Update 08/04/21: This story was published at an earlier date and has been updated with new information.