Interest and investment in clean energy has been steadily growing. Here we’ll review the best clean energy ETFs to go green in your portfolio in 2021.
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In a hurry? Here’s the list:
- ICLN – iShares Global Clean Energy ETF
- PBW – Invesco WilderHill Clean Energy ETF
- QCLN – First Trust NASDAQ Clean Edge Green Energy Index Fund
- PZD – Invesco Cleantech ETF
- FAN – First Trust Global Wind Energy ETF
- ACES – ALPS Clean Energy ETF
Contents
Introduction – Why Clean Energy?
Development, innovation, interest, and investment in clean energy has been on the rise with fossil fuels [hopefully] on the way out. Increasing energy demands from emerging markets around the globe will expedite the transition. Moreover, state and federal subsidies and tax credits will continue to accelerate the adoption of green energy initiatives as concerns over climate change mount, and the Biden administration is urging more action be taken specifically in the U.S.
Think solar, wind, hydroelectric, geothermal, etc., as well as the tech that services those specific resources. Things like solar panel installations and electric vehicle sales are at record highs. Diversification is important in investing in clean energy due to the fact that some of the underlying companies can easily go under. Below are the best clean energy ETFs to access diversified exposure to the market segment, both domestically and globally. Demand for and investment in clean energy ETFs have surged in recent years, with investors betting that the U.S. will begin taking things more seriously when it comes to climate change.
The 6 Best Clean Energy ETFs
Below are the 6 best clean energy ETFs, which vary in size, scope, and cost:
ICLN – iShares Global Clean Energy ETF
The iShares Global Clean Energy ETF (ICLN) is the most popular ETF in this space, with over $1.3 billion in assets. It’s also the oldest; it started in 2008. This fund provides broad, global exposure to the clean energy market segment with 31 companies involved in wind, solar, hyrdroelectric, and other alternative energy sources, as well as companies that provide clean energy tech.
The fund is well-diversified globally, with significant holdings in Canada, New Zealand, Hong Kong, Brazil, and more, with only about 40% in the United States. Its largest exposures are renewable energy equipment and services, electric utilities, and power producers. The fund seeks to track the S&P Global Clean Energy Index and has an expense ratio of 0.46%.
PBW – Invesco WilderHill Clean Energy ETF
The Invesco WilderHill Clean Energy ETF (PBW) is another popular broad clean energy ETF, with comparatively more of a tech, industrial, and manufacturing focus than ICLN above, with less exposure to pure energy plays like utilities and power producers. PBW also seems to put a bit more weight on solar. Note too that PBW heavily tilts small cap.
While this fund’s sector exposure can be considered broader than ICLN, PBW’s geographic exposure is less diverse, with its holdings almost entirely in the United States (86%) and China (9%). The fund was established in 2005 and seeks to track the WilderHill Clean Energy Index. This ETF has 42 holdings and an expense ratio of 0.70%.
QCLN – First Trust NASDAQ Clean Edge Green Energy Index Fund
The First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) seeks to track the NASDAQ Clean Edge Green Energy Index. This ETF is even more tech-focused than PBW above, investing in manufacturers, developers, distributors, and installers of materials, energy tech, energy storage and conversion, or renewable electricity production.
QCLN’s holdings are larger than the other funds on this list, but they’re still mostly mid caps.
The fund has 43 holdings and an expense ratio of 0.60%.
PZD – Invesco Cleantech ETF
The Invesco Cleantech ETF (PZD) is an equal-weighted index of clean tech, with more exposure to small-caps, industrials, and technology. The fund seeks to track the Cleantech Index and has an expense ratio of 0.68%.
FAN – First Trust Global Wind Energy ETF
Interested in specifically targeting wind energy? The First Trust Global Wind Energy ETF (FAN) is the only ETF to provide narrow exposure to wind energy.
While often forgotten and less flashy, wind power is considered a crucial piece of green energy initiatives. Many places around the world with low sunlight get a significant portion of their energy from wind. Companies in this fund must be actively engaged in the wind energy industry in some way, such as the development of a wind farm, or the distribution of wind-generated electricity.
The U.S. is just getting started with wind energy, so currently the fund is mostly made up of companies outside the United States. Investors may enjoy this fact, betting that the U.S. will accelerate its wind energy efforts in the near future, which would be good news for this fund.
While this fund provides very targeted exposure to a single type of clean energy, that exposure is well-diversified in 47 holdings across the globe. FAN seeks to track the ISE Global Wind Energy Index and has an expense ratio of 0.62%.
ACES – ALPS Clean Energy ETF
The ALPS Clean Energy ETF (ACES) seeks to track the CIBC Atlas Clean Energy Index, a market-cap-weighted index providing exposure to the clean energy sector in North America. ACES takes somewhat of a broader approach to clean energy, including things like LED technology and hydrogen fuel cells.
The fund has 33 holdings across the United States (75%) and Canada (25%). It has an expense ratio of 0.65%.
Where to Buy These Clean Energy ETFs
All these ETFs should be available at any major broker. My choice is M1 Finance for U.S. investors. The broker has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here. Investors outside the U.S. can find the ETFs above on eToro.
Disclosures: None.
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Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
Hey John,
I’m 22 y/o dual CA/US citizen looking to start my US portfolio. I am going to use your 100% stocks Ginger Ale portfolio and wondering how you would modify it to include these ETF’s? Would it replace some of the US small cap, emerging markets, ex-US small cap, all of the above? Leaning towards ACES for the Canadian exposure.
Thanks for all your articles they have really helped me out.
Lucas
Hey Lucas, really glad you’ve found the site helpful! These clean energy ETFs are a pretty narrow sector play, so they wouldn’t really replace any of the broader segments from the Ginger Ale. I’d say maybe lower each holding by 1-2% and then put that allocation toward clean energy.