Find Out More About Clean Energy Exchange-Traded Funds and Determine Which Funds You Should Buy Now
The majority of experts agree that one of the most significant challenges facing our generation is climate change.
Energy production is an industry that is highly dependent on fossil fuels. Fossil fuels are a major contributor to climate change, and energy production is one industry that relies heavily on them.
In the future, the use of clean energy technology will be one of the most effective strategies to combat climate change. These technologies will enable people to reduce the amount of fuel they consume while still maintaining their existing lifestyles.
Exchange-traded funds (ETFs) that focus on clean energy give investors a way to add some of these new and developing technologies to their portfolios.
This list of the five best clean energy funds, which is in no particular order, was made by looking at dozens of different funds and taking into account things like the expense ratio, the assets under management (AUM), the historical returns, and the liquidity.
iShares' Global Clean Energy Exchange Traded Fund (ETF) (ICLN)
Return over a three-year period (as of March 31, 2021): 38.67 percent
0.46 percent expense ratio
As of May 26, 2021, the number of assets under management (AUM) was $5.86 billion.
Inception date: June 24, 2008.
One of the clean energy exchange-traded funds (ETFs) with the most assets on the market is the iShares Global Clean Energy ETF. Because the portfolio has 112 different stocks, it gives investors a chance to invest in renewable energy companies all over the world.
The fund also has the lowest expense ratio of any fund on this list, with its net expense ratio coming in at 0.46 percent, which is equal to $4.60 for every $1,000 invested. This is the lowest expense ratio of any fund on this list.
It has performed admirably, increasing by 38.67 percent over the last three years, trailing only slightly behind its benchmark, the S&P Global Clean Energy Index.
Although the iShares ETF invests largely in utilities, it also invests in industrial and technological companies that are leading the charge in the creation of sustainable energy technology.
The fund also makes investments in the production of solar panels and other components that are required for the generation of renewable energy. This provides investors with a greater degree of variety than they would obtain by investing in funds that are only focused on the production of energy.
The Clean energy exchange-traded fund is issued by Invesco WilderHill (PBW)
Return on investment over a three-year period (as of March 31, 2021): 60.24 percent
0.70 percent expense ratio
As of May 26, 2021, the number of assets under management (AUM) was $1.8 billion.
The company began operations on March 3, 2005.
The Invesco WilderHill Clean Energy ETF gives investors the opportunity to purchase shares in a portfolio that consists of more than 60 companies that are active in the conservation and production of clean energy.
Companies that generate clean energy as well as those working in industries related to it, such as electric car manufacturing, are included in this category.
When it comes to buying and selling shares, investors do not need to be concerned about the fund's liquidity because the fund now has $1.8 billion under its control.
However, its expense ratio is on the higher end, coming in at 0.70 percent, which translates to $7 in additional costs for every $1,000 that is invested.
The fund's exposure to pure-play clean energy firms as well as auxiliary service providers to clean energy companies is one of its strengths, according to an analysis conducted by ETF.com. Another one of the fund's characteristics is its low expense ratio. This results in an increase in the fund's overall diversification.
NASDAQ Clean Edge Green Energy Exchange Traded Fund First Trust (QCLN)
Return on investment over a three-year period (as of March 31, 2021): 53.23 percent
0.60 percent expense ratio
As of May 26, 2021, the number of assets under management (AUM) was $2.44 billion.
The company was founded on February 8, 2007.
The Original Trust Company The NASDAQ Clean Edge Green Energy ETF is an exchange-traded fund that seeks to replicate the performance of the NASDAQ Clean Edge Green Energy Index.
Companies that "produce, develop, distribute, and/or install clean-energy technologies" are the ones that are tracked by this index. Because of this, it has a portfolio that is more diverse than that of ETFs that concentrate more on energy producers than on the clean energy industry as a whole.
The fund's expense ratio is 0.60, which translates to a cost of $6 for every $1,000 invested. The firm is currently managing assets worth $2.2 billion. It has a total of 53 separate companies in its portfolio.
ETF Database's research shows that one of the best things about the fund is that it has a diverse portfolio that focuses on green energy businesses from many different industries.
ETF for Invesco MSCI Sustainable Future (ERTH)
Return over a three-year period (as of March 31, 2021): 21.57 percent
0.58 percent expense ratio
As of May 26, 2021, the assets under management (AUM) totaled 470.8 million dollars.
Date of establishment: October 24, 2006.
Although clean energy firms are given a significant amount of weight in the fund's portfolio, the Invesco MSCI Sustainable Future ETF is concerned with a wider range of issues than only green energy.
Companies that contribute to environmental sustainability, in general, are the ones that are included in this category. The following are the six focuses of the fund: alternative energy, energy efficiency, green building, sustainable water, pollution prevention and management, and sustainable agriculture. alternative energy, energy efficiency, green building, sustainable water, and sustainable agriculture.
The expense ratio of the fund is 0.58 percent, which translates to $5.80 for every $1,000 that is invested. The firm is now managing $470.8 million of investors' money.
Thanks to this fund, investors seeking exposure to sustainable energy can do so without committing all of their capital to a single industry. The fund benefits from having some valuable diversification thanks to the fund's expansion into other firms that support sustainability.
This opens the fund up to potential investments in companies that stand to benefit from the rising popularity of eco-friendly ways of living.
ETF for Renewable Energy Producers Offered by Global X (RNRG)
Over a three-year period (as of March 31, 2021), the return is 14.69 percent.
Expense-to-income ratio: 0.65%
As of May 26th, 2021, the assets under management (AUM) totaled $126.7 million.
Date of establishment: May 27th, 2015.
The sole focus of the investments made by the Global X Renewable Energy Producers ETF is on companies that generate electricity via the use of renewable sources such as wind, solar, hydroelectric, and geothermal power.
Those who are interested in investing purely in the generation of renewable energy now have this opportunity available to them.
The fact that the fund only has $120.1 million under management is cause for concern because it indicates that a very small number of investors are interested in purchasing shares in the fund. The expense ratio for this investment is 0.65%, which results in a cost of $6.50 for every $1,000 that is invested.
The Benefits and Risks of Investing in Clean Energy Exchange Traded Funds
Pros
- Invest in a market that is expected to expand.
- Have faith in the decisions you made regarding your investments.
Cons
- Don't pass up the opportunity to profit from investing in fossil fuels.
- Several available investment opportunities
The Positives Exposed
Invest in an industry that is expanding, such as renewable energy and other clean energy technologies, which are the energy sources that are developing at the quickest rate in the United States.
Their production has more than doubled between the years 2000 and 2018, and it is expected to keep rising. As a result, investors may be able to make a lot of money as the share of renewable energy in the market continues to grow.
Some investors choose to place their money in assets that they believe reflect their own views and aspirations. This can be a fantastic way to feel good about the decisions you've made regarding your investments. If you want to make a positive contribution to the battle against climate change, investing in businesses that are committed to the development of renewable energy might make you feel good.
Defining the Drawbacks
Fossil fuels, like crude oil, still provide the majority of the energy utilized in the United States, and these clean energy ETFs do not hold any investments in fossil fuels. As a result, investors stand to lose out on potential profits from fossil fuels.
If you want to get more exposure to US energy companies, you might want to add some fossil fuel companies to your investment portfolio.
There are fewer exchange-traded funds (ETFs) that concentrate on clean energy in particular in comparison to energy as a whole because clean energy is a specialized segment within the energy business. This results in limited investment alternatives. Because there aren't that many ways to invest, investors may find it hard to find an ETF that meets their needs.
Historical and Observed Trends in Performance
Over the course of the last few decades, the generation of green energy in the United States has steadily increased in significance, with renewable sources accounting for an ever-increasing share of the country's total energy output.
Nonetheless, the S&P Global Clean Energy Index fell by more than 66 percent between April 2011 and July 2012, when clean energy firms experienced negative growth. Following a few years of more or less stable pricing, as of May 26th, 2021, the index had increased by more than 250 percent from its low point in 2012.8
Renewable energy firms have the potential to become a more important element of the energy production industry around the world as more and more people grow concerned about the effects of climate change. Because of this, companies in this sector have the opportunity to expand in the years to come.
Even though there is no way to know for sure what the future holds, it can be helpful to look into the performance of certain investments in the past to get an idea of how they might fare in the future.
Should I Invest in a Clean Energy Exchange-Traded Fund?
Investors who are interested in purchasing shares of a clean energy ETF should first analyze their motivations for their interest in this type of investment.
Is the maximization of your profits your top priority? Think about the different funds, how they might fit into your portfolio, and if they will help you reach your financial goals by investing.
Are you making investments in clean energy because you want to show your support for businesses that are working to combat climate change?
You will need to make a judgment for yourself about whether or not it is worthwhile to change your investment plan in order to invest in accordance with your own ethics.
The Crux of the Matter
Investors now have a method to add sustainable energy firms as well as companies that develop technologies for sustainable energy to their portfolios thanks to exchange-traded funds (ETFs) focused on clean energy.
The use of renewable sources of energy is widely acknowledged to be an important weapon in the fight against climate change. Due to the fact that sustainable energy has been gaining market share over the last few decades, it is possible that the industry has the ability to grow even further.
Questions That Are Typically Asked (FAQs)
What exactly are these "clean energy ETFs"?
Exchange-traded funds devoted to clean energy are known as "clean energy ETFs." These funds invest in businesses that generate electricity through environmentally friendly processes or that are otherwise engaged in the clean energy industry.
Some examples of these strategies are making new clean energy technologies and making the materials that clean energy businesses need.
How do I invest in exchange-traded funds that focus on sustainable energy?
A brokerage account is the most advantageous vehicle for investing in renewable energy exchange-traded funds (ETFs). You can also open an account with a company like Fidelity or Vanguard, put money into that account, and then start the process of placing orders.
When is the best time to invest in exchange-traded funds that focus on sustainable energy?
When to purchase an investment is a choice that is left up to the individual. Your investing objectives, investment schedule, and beliefs about how an investment will perform in the future should all factor into your decision-making process on this matter.
The majority of renewable energy exchange traded funds (ETFs) own shares in a variety of companies, which makes them susceptible to market swings. If you are only investing for the short term, you may find it challenging to deal with the market volatility.
