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We have identified the seven best clean energy ETFs that you can buy. This article will analyze and compare them so you can find the one that’s best for your portfolio.
Best Clean Energy ETFs: Background
Clean energy exchange-traded funds (ETFs) invest primarily in stocks of solar, wind, alternative energy, and clean technology companies.
These thematic ETFs are poised to benefit from the Biden Administration’s Plan for Climate Change, which would represent “the largest-ever investment in clean energy research and innovation.”
The plan calls for $400 billion in funding over 10 years to “ensure the U.S. achieves a 100% clean energy economy and reaches net-zero emissions no later than 2050.”
This time, it might actually be different. Here are the best clean energy ETFs for 2022 and beyond.
Best Clean Energy ETFs
- Performance over 1-Year: -41%
- Expense Ratio: 0.42%
- Assets Under Management: $4.6 billion
- Holdings: 79
The iShares Global Clean Energy ETF (ICLN) provides exposure to companies that produce energy from solar, wind, and other renewable sources.
iShares breaks the ‘clean energy opportunity’ into two exposure categories: clean energy producers and those that make clean energy tech and equipment.
An example of a clean energy producer is Oersted, a primary holding in ICLN that was once a fossil fuel-based energy company.
It derives over 75% of its revenue from providing offshore and wind power and plans to generate 100% clean energy by 2025.
iShares predictsthat renewables will account for 80% of electricity demand through 2030. It has filled this ETF with the companies that will satisfy that demand.
ICLN Top Holdings:
- Vestas Wind Systems (VWS) 8.11%
- Enphase Energy (ENPH) 7.32%
- Consolidated Edison (ED) 6.58%
- Oersted (Denmark: OMX) 5.84%
- SolarEdge Technologies (SEDG) 4.83%
#2. Invesco Solar ETF (TAN)
- Performance over 1-Year: -46.59%
- Expense Ratio: 0.69%
- Assets Under Management: $2.1 billion
- Holdings: 56
The Invesco Solar ETF (TAN) comprises companies in the solar energy industry, a sector that has grown by an average of 21% over the last five years.
Solar cell costs have dropped by 99% since the 1970s due to innovation and manufacturing economies of scale.
The International Energy Agency (IEA) estimates that solar will become the “king of electricity” with more cumulative capacity than any other power generation technology, including wind, natural gas, coal, and nuclear.
TAN provides diversification, with 39% of its stocks in North America, 33% in Asia, and 28% in Europe, the Middle East, and Africa.
The Invesco Solar ETF is a concentrated bet on solar outperforming its renewable counterparts.
If you think that will happen, this fund was made for you
TAN Top Holdings:
- SolarEdge Technologies (SEDG) 10.05%
- Enphase Energy (ENPH) 8.46%
- First Solar (FSLR) 7.76%
- Xinyi Solar (968) 7.46%
- Sunrun (RUN) 5.25%
#3. First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
- Performance over 1-Year: -35.59%
- Expense Ratio: 0.60%
- Assets Under Management: $2.6 billion
- Holdings: 53
The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) tracks the performance of companies engaged in manufacturing, development, distribution, and installation of “emerging clean-energy technologies.”
These technologies include solar photovoltaics, wind power, advanced batteries, fuel cells, and electric vehicles.
This fund is for people that say, ‘You know, Tesla is actually an energy company and not a car company.’ And they might be right.
Other EV top holdings include Nio and Xpeng, two Chinese EV startups directly competing with Tesla.
Nio was on the brink of bankruptcy just last year, but things are looking better — Nio sales continue to grow after doubling in 2020.
QCLN invests in a larger scope of green energy compared to other funds in this account.
QCLN Top Holdings:
- ON Semiconductor (ON) 8.79%
- Albemarle Corp (ALB) 8.65%
- Tesla (TSLA) 8.56%
- Nio (NIO) 6.57%
- Enphase Energy (ENPH) 6.04%
#4. ALPS Clean Energy ETF (ACES)
- Performance over 1-Year: -47.68%
- Expense Ratio: 0.55%
- Assets Under Management: $723 million
- Holdings: 48
The ALPS Clean Energy ETF (ACES) invests in companies focused on “renewables and other clean technologies which enable the evolution of a more sustainable energy sector.”
This ETF has a similar thematic approach to the first fund mentioned in this article, the iShares Global Clean Energy ETF (ICLN).
It has a relatively balanced thematic allocation to solar (26%), efficiency smart grid tech (19%), wind (19%), and EV/storage (14%).
The ETF’s top holding is Enphase Energy, which is a popular name in this article.
The company designs and manufactures software-driven home energy solutions that span solar generation, home energy storage, and web-based monitoring and control.
Enphase competes with Tesla, another ACES holding, in the home solar and storage business.
Analysts give Enphase the upper hand due to comparative financials.
ACES Top Holdings:
- Northland Power (NPI) 6.41%
- Brookfield Renewable Partners (BEP.UT) 6.25%
- NextEra Energy Partners (NEP) 5.74%
- Tesla (TSLA) 5.71%
- First Solar (FSLR) 4.97%
#5. First Trust Global Wind Energy ETF (FAN)
- Performance over 1-Year: -24.27%
- Expense Ratio: 0.60%
- Assets Under Management: $310 million
- Holdings: 50
The First Trust Global Wind Energy ETF (FAN) invests 60% of the fund in companies that exclusively provide goods and services to the wind energy industry. The remaining allocation goes to “significant participants in the wind energy industry despite not being exclusive to such industry.”
The Wind Energy market is expectedto be worth $180 billion by 2027, which would register a 4% CAGR between now and then.
Given the nature of the fund, FAN’s geographic exposure differs sharply from other clean energy ETFs: Denmark (16%), Canada (15%), USA (14%), Spain (12%), and China (10%).
Vestas Wind Systems is FAN’s top holding. The company designs manufactures, installs, and services wind turbines across the globe.
Vestas is well-positioned for further growth — the average duration for a Vestas service contract is ten years.
FAN Top Holdings:
- China Longyuan Power Group (OTCMKTS: CLPXY) 7.72%
- Northland Power (OTCMKTS: NPIFF) 6.99%%
- Orsted (OTCMKTS: DNNGY) 6.40%
- Vestas Wind Systems (OTCMKTS: VWDRY) 6.11%
- Siemens Gamesa Renewable Energy (OTCMKTS: GCTAY) 5.39%
#6. Invesco WilderHill Clean Energy ETF (PBW)
- Performance over 1-Year: -59.43%
- Expense Ratio: 0.61%
- Assets Under Management: $1.1 billion
- Holdings: 70
The Invesco WilderHill Clean Energy ETF (PBW) tracks companies engaged in the advancement of cleaner energy and conservation.
PBW has 70 holdings and does not significantly concentrate on specific names. Its top holding, Albemarle, accounts for just 2.5% of the ETF.
Given the fund’s top holdings by percentage, the fund appears to have a slight bias towards solar company’s stocks.
But the modified equal-weighting probably makes this ‘preference’ negligible.
A category where PBW does concentrate is geographically — it allocates 75% of the fund to U.S. companies.
PBW Top Holdings:
- Sociedad Quimica Y Miner De Chile (SQM) 1.91%
- Gentherm Inc (THRM) 1.85%
- Woodward (WWD) 1.77%
- JinkoSolar Holding (JKS) 1.74%
- Daqo New Energy Corp (DQ) 1.67%
#7. Global X Autonomous & Electric Vehicles ETF (DRIV)
- Performance over 1-Year: +1.65%
- Expense Ratio: 0.68%
- Assets Under Management: $1.3 billion
- Holdings: 82
The Global X Autonomous & Electric Vehicles ETF (DRIV) invests in companies involved in developing autonomous vehicle technology, EVs, and EV components and materials.
This includes autonomous vehicle software and hardware, lithium batteries, and EV materials like lithium and cobalt.
DRIV is not a ‘pure-play’ clean energy ETF — it’s a second-order bet on an application of clean energy. Let’s examine some of its top holdings.
Nvidia’s (NVDA) chips make semi-autonomous vehicles possible. Artificial intelligence requires massive amounts of computing power, and it takes a special kind of company to create chips that can operate in a vehicle.
Tesla (TSLA) and Alphabet (GOOGL) are arguably the furthest along in autonomous driving, but it’s unclear when full autonomy will be achieved.
In the meantime, we believe there is value in legacy automakers that are leaning into the EV shift, specifically Ford (F) and General Motors (GM).
This take might age terribly by 2040, but we expect the ‘shift to EV’ to be anticlimactic. Consumers will keep buying the vehicle brands they like — they’ll just be purchasing the electric version.
However, if Tesla and Google achieve FSD and are the only shows in town, the legacy auto industry will be hurting.
DRIV Top Holdings:
- Tesla (TSLA) 4.05%
- Nvidia (NVDA) 3.54%
- Apple (AAPL) 3.46%
- Qualcomm (QCOM) 3.42%
- Toyota Motor (7203: Tokyo) 2.9%
Alternatives to the Best Clean Energy ETFs
We got the ball rolling on this with the Global X Autonomous & Electric Vehicles ETF (DRIV), but there are plenty of other alternatives to clean energy ETFs.
If you’re investing in clean energy ETFs for the environment, you might find ESG stocks or ETFs attractive.
Some of the top ESG companies include NextEra Energy (NEE), Nvidia (NVDA), Microsoft (MSFT), Prologis (PLD), and Salesforce (CRM).
There’s also an ‘Empire Strikes Back’ approach to the clean energy sector: investing in Big Oil companies that are launching renewable energy initiatives.
While it can be hard to separate the marketing from the substance, BP (BP), Shell (RDS.A), Chevron (CVX), Total (TTE), Eni (E), and Exxon (XOM) have pumped billions into clean energy projects.
Best Clean Energy ETFs: Risks
The clean energy ETFs that launched in 2008 are still significantly off their highs. For example, TAN, ICLN, and FAN are down 70%, 56%, and 32%, respectively.
This shows why investing in exponential technologies is hard. Clean energy adoption at scale is inevitable, but it’s not particularly clear when we’ll cross that inflection point.
Additionally, there’s no shortage of uncertainty in the renewables space.
Which type of renewable will win? Will there be more than one winner? Within the winning sector, which company is best positioned to dominate?
These risks are why we recommend owning an ETF instead of individual stocks in the clean energy industry. The diversification will mitigate the downside severity of these unknowns.
Clean Energy ETF FAQs
What is the best clean energy ETF?
The iShares Global Clean Energy ETF (ICLN) provides broad exposure to the renewable energy and cleantech industries. It has balanced allocations to solar, wind, and other renewable energies. The ETF is up 57% in the last year.
Is there a renewable energy ETF?
Several renewable energy ETFs, such as the First Trust Global Wind Energy ETF (FAN) and the Invesco Solar ETF (TAN). Some renewable energy ETFs specify the type of energy companies it invests in, while others invest in the entire market. This type of narrow exposure comes with high expense ratios.
What is the ETF for energy?
There are dozens of ETFs that track the energy industry, such as the Vanguard Energy ETF (VDE), First Trust Natural Gas ETF (FCG), and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN). However, the constituents of these ETFs can greatly differ depending on the fund’s objective.
Bottom Line: Best Clean Energy ETFs
We anticipate ESG initiatives to significantly increase from now through the year 2030.
Clean energy ETFs may benefit as the world’s most powerful people and companies focus more on the ‘E’ part of ESG.
This article is for informational purposes only. It is not intended to be investment advice. Read our editorial guidelines and research methodology for ETFs to learn about how we accurately selected the best clean energy ETFs.