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The clean energy sector has been reinvigorated by a presidential administration excited about combating climate change. In April, President Biden announced a new goal of a 50% to 52% reduction from 2005 levels in greenhouse gas pollution by 2030. This goal will be supported by all sorts of green initiatives, from offshore wind farms to incentives for alternative energy production.
The clean energy boom is new, and there’s no way to know what companies will be the belles of the ball. But rather than try to predict which specific companies will prosper, you can invest in clean energy ETFs and gain wider exposure to the industry as a whole.
What are clean energy ETFs?
Clean energy ETFs are exchange-traded funds that invest in stocks in the alternative energy sector, which might include solar energy, wind, hydroelectric and geothermal companies. Like other types of funds, clean energy ETFs can easily diversify your portfolio. ETFs also tend to be less expensive than mutual funds.
Best-performing clean energy ETFs
Below is a list of the best-performing clean energy ETFs based on one-year returns, with top-performers including the VanEck Vectors Low Carbon Energy ETF, Invesco Solar ETF and the SPDR S&P Kensho Clean Power ETF.
» Excited about clean energy ETFs? Here are the best online brokers for ETF investing
One-year price return
First Trust Global Wind Energy ETF
VanEck Vectors Low Carbon Energy ETF
Invesco MSCI Sustainable Future ETF
iShares Global Clean Energy ETF
SPDR S&P Kensho Clean Power ETF
Invesco Global Clean Energy ETF
Invesco Solar ETF
ALPS Clean Energy ETF
Invesco WilderHill Clean Energy ETF
One-year returns are based on price as of February 28, 2022. Information is solely for informational purposes and not for trading purposes or advice.
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Biggest clean energy ETFs
Need a little more detail? Here are the three biggest clean energy ETFs from the list.
iShares Global Clean Energy ETF (ICLN)
With nearly $6 billion in assets under management, this ETF is the largest by nearly double. ICLN has an expense ratio of 0.46%, which is a little higher than the average ETF expense ratio, and the fund earns an “A” (a high rating) for its MSCI ESG score, which measures the fund against environmental, social and corporate governance factors. Currently, ICLN’s top three holdings include Vestas Wind Systems, which specializes in the design and installation of wind turbines; Orsted, a Denmark-based energy company that works in offshore and onshore wind with a commitment to become carbon neutral by 2025; and solar panel and storage company Enphase Energy.
» How are sustainable funds measured? Learn more about ESG
Invesco Solar ETF (TAN)
The Invesco Solar ETF is the second-largest alternative energy ETF with close to $3 billion in assets under management. TAN has a total expense ratio of 0.69% and a majority allocation of solar energy holdings. Because this fund specializes in one form of alternative energy, it may not be as diversified as other funds that invest in various types of energy. At the time of this writing, TAN’s top three holdings include Enphase Energy; SolarEdge Technologies, which is a company that creates inverter systems for solar energy systems; and Xinyi Solar Holdings, a solar glass manufacturing company.
Invesco WilderHill Clean Energy ETF (PBW)
Invesco WilderHill Clean Energy ETF has nearly $2 billion in assets under management. This ETF tracks the WilderHill Clean Energy Index and is made up of stocks involved in clean energy and conservation. PBW has an expense ratio of 0.70%, making it the most expensive of the three largest clean energy ETFs. Currently, its top three holdings include MYR Group, an electrical construction company; Daqo New Energy Corp., a company that produces a material used in the solar energy industry; and Albemarle, which produces lithium, bromine and catalyst solutions.
» Is sustainability just a label? Learn about greenwashing
Why invest in clean energy ETFs
Between the new White House green initiatives and a large number of automakers committing to making electric vehicles, the long-awaited “green revolution” may have arrived.
Clean energy ETFs offer access to energy companies without having to pick and choose stocks yourself. If you want, you can find clean energy ETFs that specialize in solar or wind, or just opt to invest more broadly across the alternative energy industry.
» Want more options? Check out the top-rated ESG funds
Disclosure: The author held no positions in the aforementioned investments at the original time of publication.