These seven green ETFs to buy now all look attractive at current levels.
The shift to renewable, less-polluting sources of energy is on the minds of governments and corporations worldwide. In April 2022, President Joe Biden announced a target 50% reduction in greenhouse gas pollution by 2030 compared with 2005 levels. Outside of the U.S. government, more and more organizations are becoming conscious of their carbon footprint and are taking steps to reduce their emissions. As a result, renewable sources of energy have become increasingly popular, with solar, wind, hydroelectric and geothermal energy seeing more deployments and funding for research and development. As reliance on fossil fuels continues to be scrutinized and reduced, the renewable energy sector is expected to grow sharply. Investors looking to get in early on the clean energy boom can invest in exchange-traded funds, or ETFs, that track the subsector. Here’s a list of the seven best low-cost clean energy ETFs to buy and hold in 2022.
Direxion Daily Global Clean Energy Bull 2x Shares (ticker: KLNE)
Looking for a high-risk, high-return bet on the outperformance of the clean energy sector? KLNE offers two times leveraged daily exposure to the returns of its underlying index, the S&P Global Clean Energy Index (SPGTCLEN). This index is made up of stocks of companies from around the world involved in the biofuels, ethanol, geothermal, hydroelectric, solar and wind industries. As with all leveraged ETFs, KLNE poses specific risks. While the returns of KLNE might be two times that of its holdings daily, the mathematics behind compounding could cause its long-term results to vary. In a highly volatile market, KLNE may underperform its unleveraged index significantly. Combined with a high expense ratio of 1.29%, KLNE is best suited for short-term traders with a high risk tolerance.
First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
A far less aggressive option is QCLN, which tracks the Nasdaq Clean Edge Green Energy Index. Investors looking for a passively managed approach may prefer QCLN, which holds its underlying 61 U.S. stocks based on their market capitalization weights. The stocks in QCLN are mostly large-cap stocks that trade on the Nasdaq and come from four clean energy subsectors: advanced materials, energy intelligence, storage and conversion, and renewable generation. The ETF is rebalanced quarterly, which helps ensure that no single company grows to dominate its holdings. Since inception, QCLN has attracted $2.1 billion in assets under management, or AUM. Holding QCLN will cost an expense ratio of 0.58%.
SPDR S&P Kensho Clean Power ETF (CNRG)
CNRG also tracks the performance of U.S. large-cap clean energy stocks but opts for a different index. The ETF tracks the S&P Kensho Clean Power Index, which employs a more algorithmic selection and weighting criteria for its constituents. CNRG’s index uses artificial intelligence and a quantitative weighting methodology to capture companies whose products and services are driving innovation behind the clean energy sector. This methodology separates CNRG’s 45 holdings into two categories: “core” and “non-core,” depending on whether the companies held make clean energy their primary business activity. Core companies are overweighted in the ETF’s holdings relative to non-core companies to offer stronger clean energy exposure. Holding CNRG will cost an expense ratio of 0.45%.
Global X Solar ETF (RAYS)
Investors bullish on solar energy can buy RAYS for pure exposure to solar companies. Compared with passive ETFs, RAYS employs additional screeners. This includes a proprietary natural language processing algorithm that scans the public filings of prospective holdings to ensure at least 50% of their revenues are solar-based, and an environmental, social and governance, or ESG, screener to avoid companies with labor, human rights and pollution issues. Each of this ETF’s 50 holdings is subject to a maximum weight of 8% to prevent a single company from dominating the ETF. RAYS is relatively new, with an inception date of September 2021. As a result, its AUM is rather low, at just $8.6 million. The ETF currently costs an expense ratio of 0.5%.
Invesco Solar ETF (TAN)
A more established alternative to RAYS is TAN, with $2.3 billion in AUM but a higher expense ratio of 0.66%. Like RAYS, TAN also offers pure solar energy exposure. Its 51 holdings track the MAC Global Solar Energy Index (SUNIDX) and consist of companies involved in solar technology development, solar materials production, solar installation and financing, and solar equipment manufacturers. TAN’s holdings can further be separated into pure-play (solar as the primary business) and medium-play (solar accounting for less than one-third of revenues) companies. U.S. stocks make up 43% of this fund’s holdings, while China accounts for the next largest portion, at 27%. Compared with the other ETFs on this list, TAN is less large-cap-heavy, with roughly 46% of its holdings concentrated in mid-cap stocks.
First Trust Global Wind Energy ETF (FAN)
Investors more bullish on the wind subsector of the clean energy industry can use FAN for pure-play exposure. FAN tracks the ISE Clean Edge Global Wind Energy Index, which comprises 52 worldwide companies active in the wind energy industry. Like TAN, FAN also separates its holdings into pure-play and diversified categories, with the former deriving at least 50% of revenues from wind businesses and the latter simply having some involvement in wind energy. FAN overweights pure-play companies so that they make up at least 60% of the ETF, while diversified companies fill in the remaining 40%. Like RAYS, FAN also imposes an 8% cap on the weights of the top five stocks, plus a 4% cap on the remaining pure plays and 2% on the diversifieds. FAN costs an expense ratio of 0.60%.
iShares Global Clean Energy ETF (ICLN)
Up last is ICLN, the largest ETF in the clean energy category in terms of AUM, overseeing $5.1 billion. ICLN tracks a globally diversified portfolio of clean energy stocks, capturing companies involved in biofuels, ethanol, geothermal, hydroelectric, solar and wind energy. Most of ICLN’s 101 holdings are concentrated in the semiconductor equipment, renewable electricity and electric utilities sectors, with a lesser concentration in electrical equipment. The ETF has high MSCI ESG fund ratings and ESG quality scores of AAA and 8.8, respectively, higher than traditional index funds. ICLN’s 10-year trailing return stands at 13.5%, with a high three-year return of 27.3%. ICLN has an expense ratio of 0.42%.
7 best clean energy ETFs to buy now:
— Direxion Daily Global Clean Energy Bull 2x Shares (KLNE)
— First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
— SPDR S&P Kensho Clean Power ETF (CNRG)
— Global X Solar ETF (RAYS)
— Invesco Solar ETF (TAN)
— First Trust Global Wind Energy ETF (FAN)
— iShares Global Clean Energy ETF (ICLN)
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7 Clean Energy ETFs to Buy Now originally appeared on usnews.com
Update 06/06/22: This story was published at an earlier date and has been updated with new information.
