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.
The potential for this sector is 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. This can boost the bottom lines of alternative energy companies.
We selected five alternative energy ETFs based on market cap, liquidity and potential stock growth this year. All the ETFs rallied throughout 2017 but have see-sawed in 2018, suggesting that investors take a wait-and-see approach. All performance figures are current as of September 28, 2018.
TAN tracks the Mac Global Solar Energy Index, which tracks 23 stocks as of September 28. The fund keeps 90% of its investments in securities from the index.
While the ETF has been volatile in the past, it had a banner year in 2017, rising nearly 50% on growing demand for solar power versus other alternative energy sources, on a global level. The ETF has an appealing dividend yield, looks to continue benefiting from solar demand in 2018 and doesn't seem to be hurt by any talk of the Trump administration potentially cutting resources for alternative energy. Nonetheless, the stock has made little headway so far this year and is currently down 13.3%. Investors will need to decide if this is a good entry point, of if the bottom has not yet been set in place.
- Avg. Volume: 75,457
- Net Assets: $319.39 million
- Yield: 2.03%
- YTD Return: -13.13%
- Expense Ratio (net): 0.70%
PBW provides exposure to U.S. companies engaged in the business of advancement of cleaner energy and conservation. It follows the WilderHill Clean Energy Index and invests at least 90% of its assets in stocks from the index. The ETF holds 40 stocks in its basket with none holding more than 4.4% of the total assets.
- Avg. Volume: 14,074
- Net Assets: $114.25 million
- Yield: 1.27%
- YTD Return: 2.78%
- 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, with 39 stocks in its portfolio.
In addition to investing 90% of its assets in stocks from the index, QCLN weights its investments so that larger companies have a larger weighting. This is 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: 14,365
- Net Assets: $96.51 million
- Yield: 0.55%
- YTD Return: -1.32%
- Expense Ratio (net): 0.60%
This ETF tracks the Ardour Global Index. The focus here is companies -- as of this writing, some 31 stocks -- in any area that is considered alternative energy.
The definition of “alternative energy” for this ETF is any company that provides power through environmentally-conscious means. There are small- and mid-cap companies in the portfolio, as well as foreign companies.
- Avg. Volume: 3,215
- Net Assets: $90.61 million
- Yield: 1.26%
- YTD Return: -0.75%
- 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 that trade at volumes that are high enough to make them easier to trade than some smaller alternative energy stocks.
- Avg. Volume: 65,633
- Net Assets: $187.89 million
- Yield: 2.45%
- YTD Return: -5.14%
- 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 government endorsement, alternative energy ETFs can be an attractive way to get into the sector.