Experts agree that climate change is one of the greatest concerns of our time. Fossil fuels are a major contributor to climate change, and one industry that relies heavily on fossil fuels is energy production.
Clean energy technologies will be one of the best ways to fight climate change going forward as they’ll allow people to burn less fuel while maintaining their current lifestyles. Clean energy exchange-traded funds (ETFs) give investors a way to add some of these new and emerging technologies to their portfolios. We’ve built this list of the five best clean energy funds, listed in no particular order, by reviewing dozens of funds and examining factors like:
|ETF Name||AUM (as of May 26, 2021)||Expense Ratio||Inception Date|
|iShares Global Clean Energy ETF||$5.86 billion||0.46%||June 24, 2008|
|Invesco WilderHill Clean Energy ETF||$1.8 billion||0.70%||March 3, 2005|
|First Trust NASDAQ Clean Edge Green Energy ETF||$2.44 billion||0.60%||Feb. 8, 2007|
|Invesco MSCI Sustainable Future ETF||$470.8 million||0.58%||Oct. 24, 2006|
|Global X Renewable Energy Producers ETF||$125.9 million||0.65%||May 27, 2015|
- 3-year return (as of March 31, 2021): 38.67%
- Expense ratio: 0.46%
- Assets under management (AUM): $5.86 billion as of May 26, 2021
- Inception date: June 24, 2008
The iShares Global Clean Energy ETF is one of the largest clean energy ETFs on the market by assets. It gives investors exposure to clean energy companies around the world, holding 112 different stocks in its portfolio.
The fund also has the lowest expense ratio of any fund on this list, with its net expense ratio coming to 0.46%, equivalent to $4.60 per $1,000 invested. It’s performed well, gaining 38.67% over the past three years—trailing its benchmark, the S&P Global Clean Energy Index, by 0.2%.
While the iShares ETF primarily invests in utilities, it also invests in industrial and technology companies responsible for the development of clean energy technology. The fund also invests in the manufacturing of solar panels and other necessities for clean energy production. This gives investors some more diversification than they would receive through funds that focus solely on energy production.
- 3-year return (as of March 31, 2021): 60.24%
- Expense ratio: 0.70%
- Assets under management (AUM): $1.8 billion as of May 26, 2021
- Inception date: March 3, 2005
The Invesco WilderHill Clean Energy ETF lets investors buy into a portfolio that includes more than 60 companies involved in clean energy and conservation. This includes both companies that produce clean energy and those that are in related fields, such as electric vehicles.
The fund has $1.8 billion under its management, meaning investors needn’t worry about liquidity when they want to buy and sell shares. Its expense ratio, however, is on the higher end at 0.70%, equal to $7 for every $1,000 invested.
According to an analysis by ETF.com, the funds strengths include its exposure to pure-play clean energy companies but also ancillary service providers to clean energy companies. This improves diversification within the fund.
- 3-year return (as of March 31, 2021): 53.23%
- Expense ratio: 0.60%
- Assets under management (AUM): $2.44 billion as of May 26, 2021
- Inception date: Feb. 8, 2007
The First Trust NASDAQ Clean Edge Green Energy ETF aims to track the NASDAQ Clean Edge Green Energy Index. The index tracks companies that are “manufacturers, developers, distributors, and/or installers of clean-energy technologies.” This gives it a broader portfolio than ETFs that focus more on energy producers than the clean energy industry as a whole.
The fund has $2.2 billion in assets under its management and an expense ratio of $0.60, equal to $6 for every $1,000 invested. Its portfolio includes 53 different companies.
An analysis from ETF Database argues that one of the fund’s best features is its broad portfolio, which focuses on companies in multiple sectors of green energy.
- 3-year return(as of March 31, 2021): 21.57%
- Expense ratio: 0.58%
- Assets under management (AUM): $470.8 million as of May 26, 2021
- Inception date: Oct. 24, 2006
The Invesco MSCI Sustainable Future ETF focuses on more than just clean energy, though clean energy companies play a major role in the fund’s portfolio. Instead, it includes companies that contribute to environmental sustainability in general. The fund’s six themes are: alternative energy, energy efficiency, green building, sustainable water, pollution prevention and control, and sustainable agriculture
The fund has $470.8 million under its management and an expense ratio of 0.58%, equivalent to $5.80 for every $1,000 invested.
This fund gives investors who want exposure to clean energy a way to invest without putting all of their money in one industry. Its diversification into other businesses that promote sustainability gives the fund some valuable diversification. This also exposes the fund to businesses that are poised to grow as sustainable living becomes more popular.
- 3-year return (as of March 31, 2021): 14.69%
- Expense ratio: 0.65%
- Assets under management (AUM): $126.7 million as of May 26, 2021
- Inception date: May 27, 2015
The Global X Renewable Energy Producers ETF invests solely in businesses that produce energy using renewable resources like wind, solar, hydroelectric, and geothermal. This makes it an option for those who want to invest solely in clean energy production.
The fund has just $120.1 million under management, which can be a concern, as this suggests not too many investors have shown interest in it. Its expense ratio is 0.65%, which is equivalent to $6.50 for every $1,000 invested.
Pros and Cons of Investing in Clean Energy ETFs
- Invest in a growing sector
- Feel good about your investment choices
- Miss out on investing gains from fossil fuels
- Limited investment options
- Invest in a growing sector: Renewable energy and other clean energy technologies are the fastest-growing energy sources in the U.S. Their output doubled between 2000 and 2018 and is poised to continue growing. This gives investors an opportunity for significant gains as clean energy increases its market share.
- Feel good about your investment choices: Some investors like to put their money in investments that they feel support their personal beliefs and goals. If you want to help fight against climate change, investing in companies dedicated to clean energy can make you feel good.
- Miss out on fossil fuels: Fossil fuels, such as crude oil, still provide the majority of energy used in the United States, and these clean energy ETFs don’t hold any fossil fuel investments. People looking for broader exposure to U.S. energy companies will want to include some fossil fuel businesses in their portfolios.
- Limited investment options: Clean energy is a niche category in the energy industry, so there are fewer ETFs that focus on clean energy in particular as compared to energy as a whole. Limited investment options means that investors may struggle to find an ETF that fits their needs.
Historical Performance Trends
Over the past decades, clean energy has become a more important part of the U.S. economy, with renewable sources becoming a larger portion of its overall energy production. However, between April 2011 and July 2012, clean energy companies experienced a downturn with the S&P Global Clean Energy Index falling over 66%. After a few years of relatively steady prices, as of May 26, 2021, the index was up more than 250% from the lows of 2012.
With many people focused on climate change, renewable energy companies have the potential to become a more important part of energy production around the world. This, in turn, gives such businesses the potential to grow in the future.
While historical performance doesn’t guarantee future results, it can be useful to look at how some investments performed in the past to predict their future potential.
Is a Clean Energy ETF Right for Me?
Investors who want to buy shares in a clean energy ETF should think about why they’re considering clean energy investing.
Is your primary goal to earn a profit? Consider all of the funds available, how they can fit into your portfolio, and whether they’ll help you achieve your investing goals.
Are you investing in clean energy because you want to support companies that are fighting climate change? You’ll have to make a personal decision about whether investing with your personal ethics is worth adjusting your investment strategy.
The Bottom Line
Clean energy ETFs give investors a way to add sustainable energy companies—and companies that develop sustainable energy technology—to their portfolios. Many people agree that sustainable energy will play a big role in the fight against climate change. Sustainable energy has gained market share in the past decades, which means the industry may have the potential to grow even further.
Frequently Asked Questions (FAQs)
What are clean energy ETFs?
Clean energy ETFs are exchange-traded funds that invest in companies that produce energy using sustainable methods or those that are otherwise involved in clean energy. These methods include developing clean energy technology and producing materials needed by clean energy companies.
How can I invest in clean energy ETFs?
The best way to invest in clean energy ETFs is through a brokerage account. You can also open an account with a company like Fidelity or Vanguard, add funds to your account, and start placing orders.
When should I buy clean energy ETFs?
When to buy an investment is a personal decision. You should make that decision based on your investment goals, your investment timeline, and your beliefs about how an investment will perform in the future.
Most clean energy ETFs hold shares in businesses, which means they can be volatile. If you’re investing for the short term, this volatility may be difficult to handle.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
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