The 3 Best Clean Energy ETFs for 2020

Learn More About Clean Energy ETFs and Which Funds to Buy Now

Young woman checking her latptop for ETF movement.
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Whether you are interested in socially responsible investing or you want to buy into a growth industry, a clean energy ETF can be a smart investment choice.

However, sector funds like these are not for every investor. Read on to learn more about clean energy ETFs and which ones are best to buy now.

What Are Clean Energy ETFs?

Clean energy ETFs are exchange-traded funds that invest primarily in stocks of companies involved in alternative energy sources, such as solar, wind, and water. These funds typically track the performance of an underlying index comprised of stocks of companies involved in clean and renewable energy sources.

Companies and energy regulators use clean energy to power electric cars, increase energy storage, and provide electricity for state and local energy grids.

Examples of stocks that may be holdings in your clean energy stock ETF include companies like Tesla (TSLA), NextEra Energy (NEP), and Enphase Energy, Inc (ENPH).

The Outlook for Clean Energy

Now may be one of the best times in history for you to invest in clean energy ETFs. According to the U.S. Department of Energy, the clean energy industry generates hundreds of billions in economic activity and has rapid growth potential in the coming year.

With a combination of increasing interest in alternative energy resources, rising oil prices, and more states adopting clean-energy benchmarks, stocks of clean energy companies could see significant growth in the long term.

As for 2020, clean energy ETFs appear to have solid momentum and may have the wind at their collective back. Some clean energy ETFs put in double-digit gains in 2019, with some price increases surging past 40% as the first quarter came to a close.

However, you’d be wise to keep a long-term outlook, because investments that focus on niche areas of the market can see significant short-term fluctuations in price. In the past 10 years, clean energy ETFs have average annualized returns that range from low single-digit gains to low single-digit declines.

Considering that the clean energy sector is relatively new and past returns fluctuated between single-digit gains and losses, you should expect to see this volatility continue for the next couple of years.

Best Clean Energy ETFs to Buy Now

Although clean energy ETFs share similar objectives and invest in many of the same sources of alternative energy, they do not all share the same holdings. Each fund differs in how it invests.

So, we generated criteria we use to find the best clean energy ETFs. Generally, it’s wise to buy ETFs that have a multi-year track record and high relative assets under management (AUM)—more than $200 million is common among the top clean energy funds.

Therefore, our following three selections are clean energy ETFs with high AUMs relative to competing funds, as well as a track record of at least 12 years: 

  • iShares Global Clean Energy (ICLN): This ETF tracks the S&P Global Clean Energy Index, which is composed of 41 clean and renewable energy stocks from all around the world. Top holdings include ENPH, SolarEdge Technologies, Inc (SEDG), and Vestas Wind Systems (VWS). ICLN’s inception date is June 24, 2008, AUM is $667.5 million and expenses are 0.46%, or $46 for every $10,000 invested.
  • Invesco Winderhill Clean Energy ETF (PBW): PBW tracks the WilderHill Clean Energy Index, which includes 39 stocks of companies involved in clean energy and conservation. Top holdings include ENPH, TSLA, and NOVA. The inception date for PBW is March 3, 2005. Its AUM is $322.1 million, and expenses are 0.71%.
  • First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN): This fund tracks the NASDAQ Clean Edge Green Energy Index, which includes a mix of U.S. and Canadian companies involved in the clean energy sector. Top holdings include TSLA, ENPH, and Brookfield Renewable Partners (BEP). The inception date for QCLN is Feb. 8, 2007. AUM is $228.5 million and gross expenses for the fund are 0.65%.

The Bottom Line

Clean energy ETFs can be used wisely as a part of a broadly diversified portfolio. However, investors are cautioned not to allocate more than 5% of their assets to one concentrated sector

Furthermore, the clean energy sector may have a bright future but the industry is still relatively new and untested, compared to traditional energy. For this reason, market risk and price volatility may be higher than the broad market indices.

Disclaimer: The information on this site is provided for discussion purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities. 

Article Sources

  1. Department of Energy. "Clean Energy." Accessed March 9, 2020.