Energy exchange-traded funds (ETFs) invest primarily in stocks of natural gas, oil, and alternative energy companies. The securities within an energy ETF's portfolio include major companies such Enbridge Inc. (ENB), as well as smaller, fast-growing companies in the sector such as SunPower Corp. (SPWR). Because energy ETFs cover a wide variety of businesses, regions, and risks profiles, they offer something for nearly every investor. The ETF approach provides diversification across the industry, allowing investors to gain exposure without taking on the level of risk inherent in investing in a specific energy company.

Key Takeaways

  • The energy sector has dramatically underperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are TAN, PBW, and QCLN.
  • The top holdings of these ETFs are Enphase Energy Inc. for the first fund and Nio Inc. for the second and third.

The energy ETF universe is comprised of about 31 funds that trade in the U.S., excluding inverse and leveraged ETFs and funds with less than $50 million in assets under management (AUM). The energy sector, as measured by the Energy Select Sector SPDR ETF (XLE), has dramatically underperformed the broader market with a total return of -49.9% over the past 12 months compared to the S&P 500's total return of 10.0%. The best performing energy ETF, based on performance over the past year, is the Invesco Solar ETF (TAN). We examine the top 3 energy ETFs below. Performance figures above are as of November 2. All other numbers in this story are as of November 4, 2020.

Invesco Solar ETF (TAN)

  • 1-Year Trailing Total Return: 149.8%
  • Expense Ratio: 0.71%
  • Annual Dividend Yield: 0.13%
  • 3-Month Average Daily Volume: 1,310,470
  • Assets Under Management: $1.9 billion
  • Inception Date: April 15, 2008
  • Issuer: Invesco

TAN is a multi-cap ETF that tracks the MAC Global Solar Energy Index, which is comprised of companies focused on the solar energy industry. The fund follows a blended strategy, investing in both growth and value stocks of solar energy companies across developed markets. It holds about 35 different components, thus offering limited diversification. Nonetheless, the fund may be a useful tool for investors looking to overweight their portfolios on the solar energy industry. The fund's top three holdings include Enphase Energy Inc. (ENPH), a manufacturer of home solar power systems and equipment; Solaredge Technologies Inc. (SEDG), an Israel-based smart energy technology company; and Xinyi Solar Holdings Ltd. (968:HKG), a Chinese company that makes and distributes solar glass products.

Invesco WilderHill Clean Energy ETF (PBW)

  • 1-Year Trailing Total Return: 129.3%
  • Expense Ratio: 0.70%
  • Annual Dividend Yield: 0.29%
  • 3-Month Average Daily Volume: 284,226
  • Assets Under Management: $904.1 million
  • Inception Date: March 3, 2005
  • Issuer: Invesco

PBW tracks the WilderHill Clean Energy Index, which focuses on stocks and sectors based on their significance for clean energy, technological influence, and in preventing pollution. The multi-cap ETF follows a blended strategy, investing in both growth and value stocks across the U.S. clean energy sector. The fund's top three holdings include NIO Inc. (NIO), a China-based electric car manufacturer; JinkoSolar Holding Company Ltd. (JKS), a Chinese company that manufactures solar panels; and SunPower, a maker of photovoltaic cells and solar panels.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)

  • 1-Year Trailing Total Return: 123.7%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.35%
  • 3-Month Average Daily Volume: 281,502
  • Assets Under Management: $798.0 million
  • Inception Date: February 14, 2007
  • Issuer: First Trust

QCLN uses the NASDAQ Clean Edge Green Energy Index as a benchmark. The multi-cap, blended ETF offers investors a deep and broad exposure to a variety of green energy sub-sectors, including solar energy, biofuels, advanced batteries, and photovoltaics. The fund's top three holdings include NIO; Enphase; and Tesla Inc. (TSLA), an electric vehicle and clean energy company.

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