How to profit from the transition to a clean energy future.
When it comes to investing, nothing is a sure thing. But it seems all but impossible that the megatrend of sustainability and clean energy won’t continue to gather momentum in 2023 and beyond. Climate change is an urgent problem, and fossil fuel prices are increasingly top-of-mind for consumers as oil and gas prices remain elevated. The following seven ETFs all offer various ways to play this clean energy transition, and all are established funds with nearly $300 million or more in assets under management. If you are environmentally minded and want to put your money behind your personal values, or even if you are just a tactical trader looking to profit from this big-picture trend, then the following seven clean energy ETFs are worth a look.
iShares Global Clean Energy ETF (ticker: ICLN)
At $5 billion in assets under management, ICLN is the largest dedicated clean energy ETF available to U.S. investors. The fund has been around since 2009, and it is one of the most popular and respected vehicles to play this investing strategy. The portfolio of roughly 100 stocks includes solar companies such as Enphase Energy Inc. (ENPH), wind turbine companies such as Vestas Wind Systems AS (VWDRY) and even utilities that have a large share of renewable energy sources in their operations. Thanks to high prices for fossil fuels during 2022, ICLN has returned to favor and is roughly flat on the year even as the broader environment on Wall Street has been rocky.
Global X Lithium & Battery Technology ETF (LIT)
Another large and liquid fund, even if it’s admittedly more of a niche play, is this $4 billion Global X ETF that is designed to play battery technology and related infrastructure. LIT is a high-tech play on the future, with a focus on electric vehicle technology but also the important lithium batteries that provide for storage and practical use of alternative energy. Consider the Powerwall integrated battery system offered by Tesla Inc. (TSLA) that provides backup protection as well as electricity when the sun (or the power grid) goes down. This is not as direct of a play as other clean energy ETFs on this list, but LIT is a popular fund that offers exposure to the sustainability trend in a different way.
Invesco Solar ETF (TAN)
On the other hand, you can’t find a more obvious clean energy play than Invesco Solar ETF (TAN). This is a dedicated solar fund that only buys companies involved with manufacturing or installing photovoltaic equipment, or directly generating power from solar cells. This focus means it isn’t particularly diversified, however. There are less than 50 total stocks in the fund, with more than 30% in the top three positions: Enphase Energy, First Solar Inc. (FSLR) and SolarEdge Technologies Inc. (SEDG). Furthermore, big-picture pressures could cause the entire solar industry to rise or fall regardless of broader clean energy trends. Still, if you don’t mind the focus or if you are most bullish on solar, this is a fund to consider. TAN is well established and liquid, with more than $2 billion in assets.
First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
Slightly smaller than some of the prior funds, QCLN is nevertheless a mature and established clean energy ETF with nearly $2 billion in assets under management. It differs in that it only has about 60 total components and makes big allocations toward a short list of these holdings. For instance, the aforementioned solar player Enphase Energy is worth more than 10% of the portfolio, and top lithium player Albemarle Corp. (ALB) is valued at nearly 9% of assets. In one way, it’s more diversified than some of the other options on this list. Still, investors should keep in mind that it is a bit top-heavy with its bias toward a few major players in the clean energy space.
Invesco WilderHill Clean Energy ETF (PBW)
With about 80 individual stocks in its portfolio and about $900 million in assets, PBW takes a well-rounded approach to clean energy. Its top holdings at present include Brazil-based miner Sigma Lithium Corp. (SGML) and high-tech solar tracking systems company Array Technologies Inc. (ARRY). That may sound like it’s a quirky fund that’s avoiding big-name stocks that lead other ETFs on this list, but it’s actually because it strives to allocate its cash equally across all its 80 or so holdings through regular rebalancing. Considering SGML is up a stunning 230% or so this year as of Dec. 9, no wonder it has grown to be a bit more of the portfolio than its peers. But quarterly rebalancing going forward will ensure PBW doesn’t put too many of its eggs in the basket of just one fashionable name.
First Trust Global Wind Energy ETF (FAN)
As the cheeky ticker symbol implies, this is an alternative energy fund that is focused on wind turbines and related technology. That includes leading manufacturer Vestas Wind Systems and utilities such as Denmark’s Orsted AS (DNNGY), which is one of the world’s preeminent sustainable electricity providers thanks to its large wind farms. The wind biz hasn’t been quite as resilient as the solar sector in 2022, but FAN has slightly outperformed the S&P 500 year to date. If you’re interested in looking at turbine technology specifically, either to diversify your sustainability investments or simply because you think it’s a better tactical play, this $284 million ETF is the way to go.
iShares USD Green Bond ETF (BGRN)
Though not a pure play on alternative energy companies, BGRN is a great example of how investors can put their money behind their principles. This nearly $300 million iShares fund is focused on “green” bonds, an interesting alternative to traditional bonds because they are earmarked expressly for sustainability expenditures such as solar arrays on corporate campuses. Green bonds can be issued by almost any organization, as long as it intends to direct the capital to expenses related to carbon reduction or the clean energy transition. Right now, top issuers include the French government and corporations, such as Apple Inc. (AAPL), that are looking to reduce their carbon footprint. BGRN is a great way to help finance the green energy transition, as these bonds finance real sustainability moves around the world.
7 clean energy ETFs to buy now:
— iShares Global Clean Energy ETF (ICLN)
— Global X Lithium & Battery Technology ETF (LIT)
— Invesco Solar ETF (TAN)
— First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
— Invesco WilderHill Clean Energy ETF (PBW)
— First Trust Global Wind Energy ETF (FAN)
— iShares USD Green Bond ETF (BGRN)
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7 Clean Energy ETFs to Buy Now originally appeared on usnews.com
Update 12/12/22: This story was previously published at an earlier date and has been updated with new information.
