We reviewed for you the best Clean Energy ETFs. Here is what we found.
What is an ETF?
An Exchange-Traded Fund is a pooled investment security that holds multiple underlying assets. This means that it is a collection of one or multiple asset classes (stocks and/or bonds)s grouped around a particular theme (replicating the S&P500 or investing in a sector such as clean energy). The asset allocation is determined under a specific methodology (company valuation, geographic exposure, ESG metrics...). The asset allocation is published in the ETF prospectus.
ETFs have multiple advantages. They are listed on the stock market, which makes them very liquid and easier to buy and sell in comparison to mutual funds. They can be bought with any brokerage account. They are usually cost-effective with low expense ratios, making them attractive to investors. They can offer diversified exposure to a particular sector at a low cost. For example, buying an ETF to be exposed to a specific sector is more manageable than buying a collection of stocks one by one. It is an easy way to diversification (although direct-indexing starts to make things easier and more accessible). ETFs can also collect dividends and redistribute them or reinvest those in their portfolio.
What are clean-energy ETFs?
Clean energy ETFs are funds that offer broad exposure to clean energy companies. They put clean energy stocks in a unique basket that is provided on trading platforms. Providers of clean energy ETFs are large financial institutions (BlackRock, Fidelity, ...) or specialized boutiques firms (iClima). Clean energy ETFs differ from ESG funds as they focus on a particular sector (clean energy) compared to offering broad exposure to an index (e.g., S&P Global) and selecting the top ESG performers.
Our Top Clean Energy ETFs
| Ticker | Issuer | Name | AUM | Expense ratio | Description |
|---|---|---|---|---|---|
| ICLN | BlackRock | iShares Global Clean Energy ETF | $5.63B | 0.42 | Broad exposure to the Clean Energy sector, global companies, expense ratio on the lower end, fair diversification, poor shareholder engagement. |
| TAN | Invesco | Invesco Solar ETF | $2.62B | 0.69 | Solely focus on solar, global companies, higher expense ratio, lower number of companies due to sectoral focus. |
| FAN | First Trust | First Trust Global Wind Energy ETF | $298.26M | 0.62 | Solely focus on wind, global companies, higher expense ratio, lower number of companies due to sectoral focus. |
| QCLN | First Trust | First Trust NASDAQ Clean Edge Green Energy Index Fund | $2.1B | 0.58 | Broad exposure to the Clean Energy sector, U.S. companies only, fair diversification |
| ACES | SS&C | ALPS Clean Energy ETF | $613.92M | 0.55 | Greater focus on decarbonization overall, fair expense ratio, U.S. and Canadian companies, fairly diversified. |
| ENRG | iClima | iClima Distributed Smart Energy ETF | $1.77M | 0.65 | Very clear theory of change, focus on decentralised electricity supply, low AUM, lower number of companies due to sectoral focus. |
The different types of clean energy ETFs
Clean energy ETFs can focus on a specific sub-category such as solar or wind or have broad exposure to the overall industry. Narrower-focused ETFs tend to have higher volatility since they have a smaller number of stocks and greater exposure to a single sector. We list below the main types of clean energy ETFs:
- Cleantech-specific funds: they focus on certain technology advancements in the field of renewable energy. For example, FAN or WNDY are ETFs focused on the wind energy industry. They invest in large companies along the entire value chain from turbine manufacturing to wind energy technology production. Typical companies in such ETFs are Orsted or Vestas Wind Systems. TAN (Invesco Solar ETF) is the equivalent for solar energy (Enphase Energy, First Solar, GCL Technology Holdings...).
- Energy-producing: Those are ETFs solely focused on the energy generation side of clean energy (solar, wind, hydroelectric; biofuels, geothermal). They group utilities and exclude service or manufacturing companies. RNRG follows this profile.
- Generalist clean-energy: They englobe all companies involved in the industry. Those funds tend to be more diversified, more liquid, and because of this, have greater assets under management. They usually have a lower expense ratio. Those ETFs are also more geographically segmented between global (iShares Global Clean Energy ETF) and US markets (ALPS Clean Energy ETF).
- Decarbonization funds: These funds take a broader approach to the low-carbon transition. They not only invest in renewable energy enablers (manufacturing, services, and producers) but also consider other sectors necessary to the transition into a low-carbon economy. Their approach is the most holistic of all. Decarbonization ETFs can invest in green energy, electric vehicles (e.g., Tesla), fuel cells, semiconductors, water and waste management, and sometimes sustainable products directly reducing CO2 emissions (e.g., plant-based meat). ACES is a decarbonization ETF.
Please note that this content is purely for informational purposes, and we are not providing to buy or sell any individual stock, bond, or fund. Talk to a qualified investment adviser.
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