It has long been established that our world is getting warmer due to fossil fuel emissions cause by humans. Icecaps are melting, while sea levels are rising, all the while extreme weather events are taking place across the globe including heatwaves, floods and forest fires.
As global leaders from 197 countries hit the negotiating table and scrambled to find a way forward in protecting our planet from the ravages of climate change in the recent COP26 - the 2021 United Nations Climate Change Conference - which took place in Glasgow, Scotland from October 31 to November 13, the clean energy sector has been reinvigorated. And the year ahead promises new growth paths for the industry, potentially aided by supportive policies from various global administrations.
Meanwhile, investors that have piled into clean energy ETFs over the past month were given a boost by the climate deal hashed out by global leaders in the final moments of COP26. With historic heatwaves, raging wildfires and massive floods becoming more apparent every year, if you’re looking to do your bit for the planet and gain a footing in the clean energy sector, you may want to do so by investing in clean energy ETFs.
What are clean energy ETFs?
Amid widespread rising concern about climate change and long-term forecasts of dwindling fossil fuel supplies, alternative energy companies, in other words those that sell or use everything ranging from solar and wind energy to hydroelectric and geothermal energy, as well as electric batteries and which aim to make a profit by transforming the way societies power themselves, have been praised for striving to alleviate our planet from the harmful effects of fossil fuels.
Clean energy ETFs are funds that invest in stocks by companies that operate in the alternative energy sector. These tend to track indexes that consist of several of these firms and just as it is typical of most ETFs, investing in clean energy funds can help diversify your portfolio, while they are ideal for those investors who don’t want to do all the analytical work on individual companies or pick and choose stocks themselves.
Top Clean Energy ETFs
Invesco Solar ETF (TAN)
The Invesco Solar ETF tracks the MAC Global Solar Energy Index and invests at least 90% of its total assets in the securities that make up the index, which also include American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). The companies that make up the index operate in the solar energy industry, which are selected based on the revenue generated from their solar-related business. By delivering a targeted exposure to the solar power energy, the ETF can be the ideal solution for those looking to be overweight in this specific industry.
With an average market cap of $7,895 million, the ETF invests heavily in information technology, around 55.19%, however, other sector allocations include utilities, industrials, financials, as well as materials. The ETF has 53 holdings, with its top allocation of approximately 56.25% in the U.S., while 17.09% of the ETF is invested in China. Next comes Spain at 6%, followed by Germany at 3.59% and Taiwan at 3.37%, amongst other geographical allocations.
Here is a breakdown of the ETF’s top five holdings:
|ENPH||Enphase Energy Inc||13.47|
|SEDG||SolarEdge Technologies Inc||11.43|
|FSLR||First Solar Inc||6.49|
|DQ||Daqo New Energy Corp ADR||3.62|
Is the Invesco Solar ETF a buy?
What’s worth noting about the Invesco Solar ETF is the fact that it offers a unique take on renewable energy, since it holds a highly concentrated portfolio of companies exclusively involved in the solar energy industry, including solar technologies, the entire value chain and related solar equipment, while it eliminates much of the renewable energy market. At the same time, the companies consist of all caps, while these include both medium-play and pure-play companies. The former, cover those with multiple business industries which generate more than one-third of their revenue from their solar-related business, while pure-play companies are those whereby the solar industry is their primary business.
The Invesco Solar ETF has an MSCI ESG Fund Rating of AA based on a score of 6.55 out of 10, which means that the companies the fund invests in appear to be resilient to disruptions arising from ESG events - events that arise from environmental, social and governance factors. In contrast, the ETF ranks in the 52nd percentile in its peer group and in the 29th percentile within the global universe of all funds covered by the MSCI ESG Fund Ratings.
In terms of its performance, if we assume an original $10,000 investment made on October 31, 2011, this original position would have grown to $35,458 on August 31, 2021 during a time frame of 10 years. Interested to invest?
iShares Global Clean Energy ETF (ICLN)
The iShares Global Clean Energy ETF tracks the S&P Global Energy index, which currently consists of leading clean energy-related stocks, particularly companies that operate in a range of sub-sectors including biofuels, ethanol, geothermal, hydroelectric, solar and wind, as well as companies that develop technology and equipment used in the process. The ETF takes large concentrated positions in these companies, which are then weighted by market cap and rebalanced on a quarterly basis.
Offering targeted access to clean energy stocks from around the world, U.S.-based companies top the list, followed by Denmark, China, Canada and Spanish-based companies, amongst others. Meanwhile, it offers most exposure in the electric utilities sector which has a 21.50% allocation, followed by semiconductor equipment at 20.16% and electric components and equipment at 14.88%. Other sectors it covers include semiconductors, heavy electrical equipment, multi-utilities, independent power producers and others.
The ETF’s top five holdings consist of the following:
|ENPH||Enphase Energy Inc||9.61|
|VWS||Vestas Wind Systems||6.64|
|PLUG||Plug Power Inc||6.30|
|SEDG||Solaredge Technologies Inc||5.61|
|ED||Consolidated Edison Inc||5.29|
Is the iShares Global Clean Energy ETF a buy?
The ETF has had a good run in 2020, shelling out 141% in returns during the last calendar year, while it saw net creations exceeding $2.6 billion for the same period. In fact, from November 3, 2020 right through February 1, 2021, the iShares Global Clean Energy ETF gained 53.3%, seeing one of the biggest proportions of retail flows during this period when compared to the other ETFs.
And as mentioned earlier, sustainability characteristics can help investors integrated non-financial, suitability considerations into their investment process and evaluate ETFs based on their environmental, social and governance (ESG) risks and opportunities. The iShares Global Clean Energy ETF has an impressive MSCI ESG Fund Rating of AAA, based on a score of 8.75 out of 10. This high rating indicates that the companies the ETF invests in are showing strong and improving management of such issues.
Click here to buy the iShares Global Clean Energy ETF (ICLN) through Moneybase Invest.
Invesco WilderHill Clean Energy ETF (PBW)
As its name applies, the ETF tracks the Invesco WilderHill Clean Energy Index, providing exposure to multi-cap companies specifically engaged in the business of advancing cleaner energy and energy conservation, while it invests at least 90% of its total assets in the stocks that make up the index. At the same time, the selection of the stocks is based on whether these companies can substantially benefit from the transition towards the use of cleaner energy, zero-CO2 renewables and conservation.
With about 73 holdings and just over $2 billion in assets, the Invesco WilderHill Clean Energy Index tends to be somewhat overweight in solar stocks, while among the top names that pop up in its portfolio include U.S. Plug Power (PLUG), Chinese XPeng (XPEV) and JinkoSolar Holding (JKS), as well as Indian Azure Power Global (AZRE), to name a few. The ETF’s primary sector allocation is in industrials, however, consumer discretionary, information technology and materials have a substantial weighting of 19.36%, 17.90% and 10.89% respectively. The rest of the exposure is across consumer companies, utilities and health care firms.
The ETF’s top five holdings include:
|BE||Bloom Energy Corp||2.05|
|FCEL||FuelCell Energy Inc||1.95|
(Source: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=PBW - as of November 10, 2021)
Is the Invesco WilderHill Clean Energy ETF a buy?
Another substantial clean energy ETF for investors to consider, its long-term performance is considered among the best of its kind, with total gains of about 350% in the last five years. In fact, if we assume that a $10,000 investment was made on September 30, 2011, this initial position would have grown as high as $52,979 on January 31, 2021.
What’s more, the Invesco WilderHill Clean Energy moves beyond pure-play companies exclusively involved in wind, solar, biofuels and geothermal companies to also include firms which develop and sell energy technologies and energy management services that help address efficiency and environmental issues, potentially offering some diversification. On the other hand, it follows a tiered, equal-weighting structure, while it caps each holding at 4%.
Add the Invesco WilderHill Clean Energy ETF (PBW) to your portfolio.
First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN)
The objective of the First Trust Nasdaq Clean Edge Green Energy Index Fund is to seek investment results that correspond to the price and yield, before any fees and expenses, of the Nasdaq Clean Edge Green Energy Index, a modified market capitalization weighted index which is designed to track the performance of clean energy companies. As a market cap weighted index, larger companies tend to get a larger index weighting, however, the index weighting methodology does include caps to prevent high concentrations. Eligible companies must be manufacturers, developers, distributors or installers of one of four sub-sectors, namely advanced materials, energy intelligence, energy storage and conversion, as well as renewable electricity generation.
With a mix of both value and growth stocks, some of the industry heavyweights the ETF boasts in its unique portfolio include electric vehicle manufacturers like Tesla (TSLA) and NIO (NIO), alongside stocks like the likes of Plug Power (PLUG) and Enphase (ENPH) among others. While electric vehicles might not be directly linked to the generation of renewable energy, EVs do form part of a clean energy future, while these stocks and their battery technology have applications that go far beyond the automotive industry.
Here is a breakdown of the ETF’s top five holdings:
|ENPH||Enphase Energy Inc||7.77%|
|ON||ON Semiconductor Corporation||6.01%|
Is the First Trust Nasdaq Clean Edge Green Energy Index Fund a buy?
When on November 8, Tesla hit the news that its stock was up by 54% over the past month, the electric vehicle giant reached a market cap of $1.17 trillion as of the close of U.S. markets on Friday, November 5. The move boosted a number of ETFs, including the First Trust Nasdaq Clean Edge Green Energy Fund, which surged over 27% over the past month.
But there are other appealing factors to the ETF other than the thriving companies it invests in. For instance, it serves as a unique option to the alternative energy category, since it also invests in firms that are engaged in a variety of different activities related to several green energy sub-sectors, which means that it casts a wide net of exposure and can offer diversification to any portfolio. This coupled with the fact that it has a relatively deep basket of individual companies makes it an appealing investment.
SPDR S&P Kensho Clean Power ETF (CNRG)
The SPDR S&P Kensho Clean Power ETF focuses on companies which have products and services that serve as key innovating drivers behind clean power. As such, the ETF seeks to provide investment results which typically correspond to the total return performance of the S&P Kensho Clean Power Index, before fees and expenses, while it tracks the index by making use of artificial intelligence and a quantitative weighting methodology. Companies included offer products and services related to areas such as solar, wind, geothermal and hydroelectric power. Typically, the ETF invests at least 80% of its total assets in the securities comprising the index, while holdings are initially weighted equally, with an overweighting factor applied to core stocks.
Electrical components and equipment make the bulk of the ETF with a 20.65% weighting, whereas semiconductors also have a hefty weighting of 15.12%. These are followed by electric utilities, semiconductor equipment, renewable electricity, construction and engineering, to name a few. Enphase Energy (ENPH), Telsa (TSLA) and SolarEdge Technologies (SEDG) are some of the firms the ETF invests in, yet the SPDR S&P Kensho Power ETF invests in several others that hail from the U.S., Canada, China, Brazil, Chile and Singapore. More specifically, the ETF has 43 holdings.
Below is a list of its top holdings:
|ENPH||Enphase Energy Inc||4.31|
|ARRY||Array Technologies Inc||4.00%|
|JKS||JinkoSolar Holding Co. Ltd. Sponsored ADR||3.73%|
|SEDG||SolarEdge Technologies Inc||3.60%|
(Source: https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-sp-kensho-clean-power-etf-cnrg - as of November 16)
Is the SPDR S&P Kensho Clean Power ETF a buy?
According to the ETF’s fact sheet, the expected NAV (net asset value) total return is 30.10% for 1 year, while its 3-to-5-year EPS (earnings per share) growth is established at a rate of 14.89%. This could potentially mean that the ETF may provide an effective way to pursue long-term growth potential by investing in a portfolio of companies involved in the transition to lower emission generating power supply.
Meanwhile, the fund has a good MSCI ESG fund rating of A based on a score of 6.51 out of 10, which indicated that the companies involved are resilient to any disruptions arising from environmental, social and governance factors. The ETF also occupies the 53rd position in the MSCI ESG Fund Quality Score within its peer group as defined by the Thomson Reuters Lipper Global Classification.
Add SPDR S&P Kensho Clean Power ETF (CNRG) to your portfolio.
How to invest in clean energy ETFs with Moneybase Invest
Ready to invest in these top clean energy ETFs? Your first step to tapping into a world of investment opportunities with Moneybase Invest is to sign up and open an account.
To do so:
- Download the app from either Google Play or the Apple App Store. Alternatively, you may access Moneybase Invest on your desktop by visiting https://live.cctrader.com/
- Once you’ve onboarded successfully and have funded your account, head over to the search bar at the top of your screen and input either the ETF name or ticker symbol.
- Select the instrument of your choice from the list and then click on the Buy button on the window located at the bottom of your screen.
- On the New Order page, input the number of shares you would like to purchase and hit the Place Buy Order. The ETF has been added to your portfolio.
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Want to find out more about ETFs, how they work and what the benefits of investing in them are? Have a look at this comprehensive guide on ETFs. Are you interested in other thematic ETFs? Here are top five AI (artificial intelligence) ETFs. On the other hand, if you would like to give your income a much-needed boost, here are some top players in the dividend ETF space you may want to consider.
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