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 as 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.
- The energy sector has dramatically underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are PBW, TAN, and QCLN.
- The top holdings of these ETFs are sponsored ADRs of ReneSola Ltd., Enphase Energy Inc., and Tesla Inc., respectively.
There are 36 energy ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The energy sector, as measured by the S&P 500 Energy Sector Index, has dramatically underperformed the broader market with a total return of -16.7% over the past 12 months compared to the S&P 500's total return of 20.0%, as of February 3, 2021. The best performing energy ETF, based on performance over the past year, is the Invesco WilderHill Clean Energy ETF (PBW). We examine the top 3 energy ETFs below. All numbers below are as of February 5, 2021.
- Performance over 1-Year: 237.7%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 0.35%
- 3-Month Average Daily Volume: 797,425
- Assets Under Management: $3.4 billion
- Inception Date: March 3, 2005
- Issuer: Invesco
PBW tracks the WilderHill Clean Energy Index, which targets companies focused on green and renewable sources of energy and clean-energy technology. The ETF normally invests a minimum of 90% of its total assets in common stocks that make up the index. The majority of its 58 holdings operate within the industrials, consumer discretionary, and tech sectors. The multi-cap fund follows a blended strategy, investing in both growth and value stocks. The fund's top three holdings include sponsored ADRs of ReneSola Ltd. (SOL), a China-based solar power project development company; Arcimoto Inc. (FUV), a developer and manufacturer of three-wheeled electric vehicles; and sponsored ADRs of Daqo New Energy Corp. (DQ), a China-based manufacturer of polysilicon, primarily for use in solar photovoltaic systems.
- Performance over 1-Year: 231.2%
- Expense Ratio: 0.69%
- Annual Dividend Yield: 0.08%
- 3-Month Average Daily Volume: 2,269,406
- Assets Under Management: $4.9 billion
- Inception Date: April 15, 2008
- Issuer: Invesco
TAN tracks the MAC Global Solar Energy Index, which is comprised of companies focused on the solar energy industry. The ETF normally invests at least 90% of its total assets in securities tracked by the index. It is comprised of 37 holdings and is heavily weighted to the information technology sector. While globally diversified, the fund is dominated by companies domiciled in the U.S. and China. TAN follows a blended strategy, investing in both value and growth stocks with various market capitalizations. Its top three holdings include Enphase Energy Inc. (ENPH), a developer and manufacturer of microinverter systems for the solar photovoltaic industry; GCL-Poly Energy Holdings Ltd. (3800:HKG), a manufacturer of polysilicon and wafers for the solar industry; and SolarEdge Technologies Inc. (SEDG), an Israel-based provider of solar power optimization and photovoltaic monitoring solutions.
- Performance over 1-Year: 201.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.25%
- 3-Month Average Daily Volume: 926,194
- Assets Under Management: $3.2 billion
- Inception Date: February 14, 2007
- Issuer: First Trust
QCLN tracks the NASDAQ Clean Edge Green Energy Index, which is a modified market cap-weighted index designed to gauge the performance of U.S. clean energy companies. The ETF is comprised of 44 holdings, the majority of which operate within the renewable energy equipment, automobile, or alternative electricity industries. The multi-cap fund follows a blended strategy of investing in both growth and value stocks across the U.S. clean energy sector. Its top three holdings include Tesla Inc. (TSLA), a manufacturer of electric vehicles and energy storage systems; Plug Power Inc. (PLUG), a provider of alternative energy technology; and Enphase Energy.
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