The alternative energy space has not been as lucrative as environmentally conscious investors would like. And with the Trump administration promoting legislation that would cut resources for alternative energy, the immediate future for the sector could be turbulent. However, those interested in gaining some exposure to this potentially profitable market can diversify across several companies by buying alternative energy exchange-traded funds.
Despite the White House's attitude, the potential for this sector remains very large due to growing awareness about global warming and the depletion of oil reserves over time. In addition, with oil prices expected to keep rising, alternative energy is becoming more attractive to many consumers. These trends can boost the bottom lines of alternative energy companies.
We selected five alternative energy ETFs based on market cap, liquidity and potential stock growth in 2020. All have been trending up this year.
- Investors interested in betting on alternative energy might look into ETFs that focus on the sector, which have been trending up throughout 2019.
- Five ETFs of interest are Invesco Solar, Invesco WilderHill Clean Energy, First Trust Nasdaq Clean Edge Green Energy, VanEck Vectors Low Carbon Energy, and iShares Global Clean Energy.
All figures are current as of Dec. 13, 2019.
TAN tracks the MAC Global Solar Energy Index, which is composed of 22 stocks listed on exchanges in developed countries. The fund keeps 90% of its investments in securities from the index.
The ETF has been volatile in the past: It had a banner year in 2017, rising over 54%, and then it posted a negative 25.16% return in 2018. Now, its daily total return is up more than 55% YTD on the growing global demand of harnessing the sun versus other alternative energy sources. Its price has been gradually trending up in 2019, and investors will need to decide if its current NAV of $29 is a good entry point.
- Avg. Volume: 202,318
- Net Assets: $396.08 million
- Yield: .46%
- YTD Return (monthly): 55.07%
- Expense Ratio (net): 0.70%
PBW provides exposure to U.S. companies engaged in the business of advancing cleaner energy and energy conservation. It follows the WilderHill Clean Energy Index and invests at least 90% of its assets in stocks from the index. The ETF holds approximately 40 stocks in its basket, with none representing more than 4.68% of the total assets. Bloom Energy Corp., Tesla Inc., and Plug Power Inc. are its top three holdings. It too has been steadily rising all year; in fact, its NAV of $32 is near a high for the last 52 weeks.
- Avg. Volume: 26,945
- Net Assets: $190.57 million
- Yield: 1.37%
- YTD Return: 47.71%
- Expense Ratio (net): 0.70%
QCLN is for investors who want to focus on green energy. This ETF tracks the Nasdaq Clean Edge Green Energy Index, investing at least 90% of its assets in (currently) 39 stocks.
While the index is designed to track the performance of small-, mid- and large-capitalization clean energy companies, QCLN weights its investments so that larger companies have a larger presence, a tactic known as market-cap weighting. Despite this effort, the money managers place limits on how much money can be put into any given stock to avoid over-exposure to large stocks in the index.
- Avg. Volume: 16,735
- Net Assets: $127.08 million
- Yield: 1.16%
- YTD Return: 33.47%
- Expense Ratio (net): 0.60%
Launched in July 2019, this ETF is a rebranded version of the VanEck Vectors Global Alternative Energy ETF (GEX). Despite the name change (and the new, deliberately ironic ticker), the fund has the same benchmark as its predecessor: the Ardour Global Index Extra Liquid. The index focuses on companies involved in the production of power through environmentally friendly, non-traditional sources such as wind, solar, hydro, geothermal and bio-fuel.
In effect, the definition of “low carbon energy” for this ETF is any company that provides power, or supports the production of power, through environmentally-conscious means. There are small- and mid-cap companies in the 31-stock portfolio, as well as foreign companies.
SMOG is thinly traded and, with a NAV of $73, pricey compared to other ETFs, but it's also held a bit more steady over the years (counting its previous incarnation).
- Avg. Volume: 3,858
- Net Assets: $96.12 million
- Yield: .48%
- YTD Return: 30%
- Expense Ratio (net): 0.63%
The S&P Global Clean Energy Index is the benchmark for this ETF, which maintains a 90% concentration of assets from the index. Up to 10% of assets may be in futures, options and swap contracts. Currently, 31 stocks are in the portfolio.
ICLN also invests in companies that are not part of the underlying index. There is also a focus on liquidity. The fund seeks clean energy companies with high volumes, which makes them easier to trade than some smaller alternative energy stocks. As one of the largest clean-energy ETFs, ICLN itself is quite liquid and something of a bargain with a NAV of $11.
- Avg. Volume: 353,343
- Net Assets: $370.45 million
- Yield: 1.67%
- YTD Return: -36.46%
- Expense Ratio (net): 0.47%
The Bottom Line
Alternative energy has yet to produce a highly profitable company. But for investors who are willing to be patient and wait for increased consumer acceptance and federal endorsement, alternative energy ETFs can be an attractive way to get into the sector.