7 Top Performing Clean Energy ETFs for March 2023
A fervent presidential administration has ignited a new hope in the clean energy sector with goals to tackle climate change. President Biden declared the goal of reducing greenhouse emissions by 50-52% from 2005 levels by 2030, to be catalysed through offshore wind farms and incentives for alternative energy production, among other green initiatives.
Investing in clean energy exchange-traded funds (ETFs) could be the perfect way to get a foothold into this new and ever-changing industry. Rather than trying to guess which company will take off, you can benefit from wider access and exposure by investing in these ETFs. That way, no matter how unpredictable the market may prove to be, you'll have diversified your investments across multiple companies - giving yourself stability while potentially maximising returns.
What are Clean Energy ETFs?
Solar power, wind turbines, hydroelectricity and geothermal solutions are just a few of the stocks that might be included within ETFs. These funds can be actively managed or passively track the performance of an index like the S&P Global Clean Energy Index. By investing in ETFs, you are helping fuel your portfolio while promoting sustainability and fostering global change.
At present, there are 15 clean energy ETFs listed in the U.S. market. With a whopping $4.8 billion worth of assets under management, iShares Global Clean Energy ETF (ICLN) is by far the most significant among them all. Investors have started selecting these clean energy ETFs as an alternative to other energy sector ETFs, or they may prefer this route for its ESG investing approach—which speaks volumes about the ever-increasing utility and sustainability of green technology investments.
How to Evaluate Clean Energy ETFs
When analysing ETFs, savvy investors should consider not only short-term performance, but rather long-haul returns, cost ratio, holdings and scores. Criteria used to determine the best clean energy ETFs include:
When selecting from our list of best clean energy ETFs, the primary performance indicator we use is their 1-year returns. Consequently, any ETF that has been in existence for less than a year was excluded from consideration. To gain a better understanding of how these investments have performed over time, investors should review 3-, 5-, and 10-year returns before making a final decision on which one to purchase.
When evaluating ETFs within the same asset category, it is essential to review the fund's expense ratio as this metric will help you determine which one has a lower cost and thus higher potential for growth. Often, ETFs that track similar indices possess comparable performance, but by analysing their fees you can discern which one gives your portfolio an upper hand in terms of returns.
Unlike closed-end funds (CEFs), many ETFs are structured in the form of open-ended investment companies. Additionally, ETF structures can be manifested as grantor trusts, limited partnerships, or even ETNs for greater versatility.
To narrow down the options to our best clean energy ETFs, we only considered funds with a primary focus on stocks in this sector. Whether actively or passively managed, these investments had to meet one important criterion - no alternative objectives and strategies like inverse ETFs or leveraged ETFs were acceptable.
ETFs are a great way to invest in the clean energy market, with stocks of businesses operating within solar power, wind-generated electricity, geothermal heat production and hydroelectricity across both U.S. and international borders.
Best-performing clean energy ETFs in February 2023
With the immense investment flowing into clean energy, many ETFs are now turning their attention to this budding sector. Investors can choose from a variety of options that range from broadly investing across all green industries or focusing on one aspect specifically. To aid in your decision-making process, here are seven top ETFs that each revolve around different aspects of the burgeoning clean energy sector:
By investing in the iShares Global Clean Energy ETF, you are contributing to global companies that specialise in renewable energy sources such as solar and wind.
This ETF invests in a wide array of clean energy companies, such as those producing components for wind turbines and solar energy inverters, or operating renewable energy facilities, giving investors direct access to organisations devoted to creating sustainable sources of power. It's worth noting that the fund is heavily concentrated at the top; its 10 largest holdings comprise over 50% of the whole portfolio. Therefore, a small number of stocks significantly determines how well this fund performs overall.
The iShares Global Clean Energy ETF has earned an AA rating from MSCI, ranking it in the top 76th percentile of all exchange-traded funds and making it a superior choice for those seeking socially responsible investments. What's more, this fund boasts a reasonable expense ratio of 0.40%, allowing investors to maximise their returns without worrying about high fees.
The First Trust NASDAQ Clean Edge Green Energy Index Fund offers investors the opportunity to capitalise on some of the most cutting-edge companies in clean energy. It holds stocks that manufacture, design, and distribute sustainable solutions, such as solar power systems, wind turbines, battery storage technology, fuel cells and electric vehicles (EVs).
This ETF offers a diversified portfolio with an emphasis on transportation electrification and the energy sector. Its investments are concentrated among its largest holdings, including companies in the renewable energy equipment (23%), auto (20%), semiconductors (17%), diverse chemicals (12%), alternate electricity production sources(11%), alternative fuels (4%), specialty chemicals(2%), mining operations(2%) and electronic components industries.
With an AA rating on ESG from MSCI, the First Trust NASDAQ Clean Edge Green Energy ETF stands out among global ETFs. This outstanding fund ranks in the 55th percentile for its environmental, social and governance (ESG) factors. Plus, it has a cost-effective expense ratio of 0.58%.
Investing in the Invesco Solar ETF means gaining exposure to companies that are involved in all aspects of solar energy - from those producing photovoltaic and electrical components, to others that install these innovative systems.
The fund provides geographic and sector diversification; fewer than half of the fund's holdings are US listed companies, while 58% are information technology companies, 22% are utilities, 15% industrials, 2% financials and 3% materials. The Invesco Solar ETF yields excellent ESG results, earning a grade of A from MSCI. Compared to global ETFs as a whole, it stands in the 45th percentile for ESG performance. Furthermore, its expense ratio is an affordable 0.66%.
By the end of 2022, The Invesco WilderHill Clean Energy ETF had over 80 investments in U.S. companies that are actively driving clean energy and conservation initiatives forward.
This ETF's equal-weight approach provides investors with a comprehensive exposure to clean energy businesses, investing equally in solar power firms, EV manufacturers, geothermal plants, climate tech startups, and more. The portfolio contains companies from industrials (45%), consumer discretionary (18%), IT (15%) materials (13%), utilities(7%), energy (1%) and financials(1%).
The MSCI ESG rating of the Invesco WilderHill Clean Energy ETF is a remarkable BBB, positioning it in the 33rd percentile among funds within its alternative energy group. Better yet, this ETF has an affordable expense ratio of 0.62%.
The ALPS Clean Energy ETF provides investors with a unique opportunity to benefit from the rapidly growing renewable and clean energy sector. This fund offers exposure to an expansive array of U.S. and Canadian companies involved in solar, wind, hydropower, geothermal, bioenergy production, as well as electric vehicle manufacturing and energy management storage solutions, among others such as fuel cells and hydrogen-based alternatives.
This therefore offers a diversified portfolio across several sectors and themes. Utilities comprise 29%, industrials 28%, consumer discretionary 17%, information technology 13%, energy 5% , materials 5% and financials 2%. Additionally, the fund covers electric vehicles (29%), solar energy (26%), wind power (19%), hydro/geothermal (9%), bioenergy (8%), fuel cell/hydrogen (6%) and energy management & storage (4%).
The ALPS Clean Energy ETF is a stellar choice for those looking to invest in accordance with ethical and environmental values, as evidenced by its AA rating from MSCI. Not only that, but the fund also ranks highly among all other available exchange traded funds (ETFs) on ESG factors at 63rd percentile - all whilst maintaining an affordable expense ratio of 0.55%.
Investing in the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund, rated AAA by MSCI and ranking in the 79th percentile of all ETFs, grants you access to diversified sectors such as electrical components (26%), diversified industrials (13%), renewable energy equipment (11%) and more, all with a low 0.63% expense ratio.
If you're searching for an ETF that puts its focus on the burgeoning wind energy sector, then the First Trust Global Wind Energy ETF is what you need. With broad geographic diversification and exposure to companies specialising in various aspects of wind energy, this fund rates exceptionally well when it comes to ESG factors; with a MSCI AAA rating and ranking at 79th percentile of all other ETFs. On top of these benefits, investors will also benefit from this low-cost option's reasonable expense ratio at 0.60%.
Frequently Asked Questions
Are ETF funds a good investment?
ETFs are a great choice for investors who want to diversify their portfolios, have more control over their investments and benefit from lower fees. ETFs enable you to gain access to multiple assets such as stocks, bonds or other markets on stock exchanges with ease, making them an ideal solution when the time comes to buy and sell. Additionally, these funds usually require fewer investment costs than mutual fund options, which makes them especially attractive for investors who prioritise cost management.
Are ETFs better than MF?
For many investors, the choice between ETFs and MFs (mutual funds) is determined by their personal goals, preferences, and strategies. Both types of investments have similar objectives but differ in how they are traded; while ETFs trade like stocks on an exchange market, MFs can only be purchased at the end of a given trading day. Additionally, compared to mutual funds which may require more active management from users, ETFs tend to be much more tax-efficient than traditional investment vehicles. Ultimately it comes down to what works best for your individual financial requirements.
What is the most well-known ETF?
SPY, the SPDR S&P 500 ETF, provides investors with access to the US stock market. Its performance mirrors that of the S&P 500 index, which serves as a standard gauge of how well US equities are faring. Boasting high assets under management and over two decades worth of reliable returns, SPY grants all types of traders an effective means for betting on American stocks without having to buy individual shares.
Is an ETF safer than stocks?
ETFs are an investment vehicle that hold a mix of stocks, bonds, and other assets. They trade on stock exchanges like individual shares do; however, the risk level associated with ETFs varies depending on the underlying holdings of each fund. Since these vehicles spread their investments across multiple industries or asset classes rather than just one company’s performance, they may be less high-risk compared to investing in single stocks alone. Nonetheless, it is essential to remember that all investments have some degree of risk, so investors should evaluate their attitude toward potential losses as well as financial goals before taking any action.
Do ETFs pay dividends?
Yes, ETFs can distribute dividends to their shareholders. Companies often make payments in the form of dividends to those who own stocks in them, and if an ETF contains dividend-paying companies' stocks, then they will usually pass along these payouts. Nonetheless, not all exchange traded funds grant dividends and the sum as well as frequency of such disbursements may differ depending on its portfolio composition plan or instruments it possesses.