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 may include major companies such as NextEra Energy Inc. (NEE) and Enbridge Inc. (ENB), as well as smaller, fast-growing companies in the sector. 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 to the industry 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 QCLN, PBW, and TAN.
- The top holdings of these ETFs are Tesla, Vivint Solar, and Solaredge Technologies, respectively.
The energy ETF universe is comprised of about 36 funds, 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 Energy Select Sector SPDR ETF (XLE), has dramatically underperformed the broader market with a total return of -34.7% over the past 12 months compared to the S&P 500's total return of 18.1%. The best performing energy ETF, based on performance over the past year, is the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN). We examine the top 3 energy ETFs below. All numbers in this story are as of August 12, 2020.
- Performance over 1-Year: 78.1%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.69%
- 3-Month Average Daily Volume: 111,818
- Assets Under Management: $361.0 million
- Inception Date: February 14, 2007
- Issuer: First Trust
QCLN utilizes 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 Tesla Inc. (TSLA), an electric vehicle and clean energy company; NIO Inc. (NIO), a China-based electric car manufacturer; and Solaredge Technologies Inc. (SEDG), an Israel-based smart energy technology company.
- Performance over 1-Year: 76.4%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 0.65%
- 3-Month Average Daily Volume: 114,789
- Assets Under Management: $511.9 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 Vivint Solar Inc. (VSLR), a residential solar energy provider; Sunrun Inc. (RUN), a provider of residential solar electricity; and NIO.
- Performance over 1-Year: 64.3%
- Expense Ratio: 0.71%
- Annual Dividend Yield: 0.18%
- 3-Month Average Daily Volume: 472,449
- Assets Under Management: $1.1 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. The fund, nonetheless, may be a useful tool for investors looking to overweight their portfolios on the solar energy industry. The fund's top three holdings include Solaredge Technologies; Sunrun; and First Solar Inc. (FSLR), a provider of photovoltaic solar power systems and solar modules.