Alternative energy companies, which sell or use everything from solar energy to hydrogen and electric batteries, aim to make a profit by transforming the way societies power themselves. This is happening amid rising global concern about climate change, and also amid long-term forecasts of dwindling fossil fuel supplies. Alternative energy exchange-traded funds (ETFs) track individual companies like oxide fuel cell maker Bloom Energy Corp. (BE) and hydrogen power firm Plug Power, Inc. (PLUG), as well as indexes that track several alternative energy companies. Many of the businesses in this industry are largely untested and inherently risky additions to a portfolio on their own, but an ETF can offer potentially lower-risk access to the sector. Over the past year, the alternative energy industry, as represented by the benchmark iShares Global Clean Energy ETF (ICLN), has significantly outperformed the broader market. ICLN has 1-year trailing total returns of 49.1% as compared to 18.2% for the S&P 500.

Key Takeaways

  • The alternative energy industry has far outperformed the broader market in the past year.
  • The top ETFs based on 1-year trailing total returns are QCLN, PBW, and TAN.
  • The top holdings for these funds are Tesla Inc., Vivint Solar Inc., and Solaredge Technologies Inc., respectively.

There are 10 ETFs focused on alternative energy, excluding leveraged and inverse funds as well as those with under $50 million in assets under management (AUM). The best alternative energy ETF for Q4 2020 is the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN). Below, we examine the top 3 alternative energy ETFs as measured by 1-year trailing total returns. All figures are as of August 20, 2020.

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

  • 1-Year Trailing Total Returns: 87.0%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.66%
  • 3-Month Average Daily Volume: 122,685
  • Assets Under Management: $409.3 million
  • Inception Date: February 14, 2007
  • Issuing Company: First Trust

QCLN is a multi-cap fund following a strategy which blends value and growth stocks from the U.S. The fund targets companies represented in a wide variety of green energy sub-sectors, including solar energy, biofuels, and advanced batteries, among others. The fund tracks the NASDAQ Clean Edge Green Energy Index. The ETF's top holdings include Tesla Inc. (TSLA), the electric vehicle maker; NIO Inc. (NIO), the Chinese electric vehicle company; and Solaredge Technologies Inc. (SEDG), a maker of components for photovoltaic arrays.

Invesco WilderHill Clean Energy ETF (PBW)

  • 1-Year Trailing Total Returns: 80.3%
  • Expense Ratio: 0.70%
  • Annual Dividend Yield: 0.63%
  • 3-Month Average Daily Volume: 127,220
  • Assets Under Management: $574.8 million
  • Inception Date: March 3, 2005
  • Issuing Company: Invesco

This ETF tracks the WilderHill Clean Energy Index, providing exposure to multi-cap U.S. companies engaged in the business of advancing cleaner energy and energy conservation. This means that PBW includes tech companies as well as industrials, materials, utilities, and stocks from other sectors. PBW's top holdings include Vivint Solar Inc. (VSLR), the solar energy and smart home company; Sunrun Inc. (RUN), the residential solar panel maker; and Tesla.

Invesco Solar ETF (TAN)

  • 1-Year Trailing Total Returns: 64.4%
  • Expense Ratio: 0.71%
  • Annual Dividend Yield: 0.17%
  • 3-Month Average Daily Volume: 499,292
  • Assets Under Management: $1.1 billion
  • Inception Date: April 15, 2008
  • Issuing Company: Invesco

This ETF tracks the MAC Global Solar Energy Index, comprised of multi-cap companies involved in all aspects of the solar energy industry and based around the world, though primarily in the U.S. and China. The company holds around 35 U.S. and international stocks. TAN's top holdings include Solaredge Technologies; Sunrun; and solar power company Enphase Energy Inc. (ENPH).