Best energy ETFs: Top oil, gas and clean energy funds
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If you’re looking to invest in the energy sector, which historically has included mostly oil and gas companies, buying an energy exchange-traded fund (ETF) is an easy way to do that. With an energy ETF you can buy a cross-section of the industry, letting you play the sector if you think it’s about to rally. An ETF also offers diversification, reducing your risks over buying a small number of individual stocks.
What are the main kinds of energy ETFs?
The energy sector is large, and it can be broken down into sub-sectors, depending on how the companies within it operate. So you have multiple ways to invest in the energy industry, and an energy ETF can give you exposure to many of these sectors:
- Exploration and production – This area of the industry is focused on finding, developing and producing crude oil.
- Refining – This sub-sector is focused on turning crude oil into usable products such as gasoline.
- MLP – An MLP stands for a master limited partnership, and it’s a special legal structure typically associated with midstream companies such as pipelines. MLPs often pay large dividends.
- Oil equipment and services – This sub-sector includes companies that supply goods and services to explorers and pipeline companies.
- Crude oil – You can also invest in an ETF that tracks the daily movements of petroleum.
If you’re looking for other types of energy exposure, such as innovative green companies, you can find that, too. Some ETFs are focused on owning clean energy companies, including those in solar or wind energy. So you have many options when it comes to investing in energy ETFs.
Those looking for diversification across industries can turn to some of the best index funds.
iShares Global Clean Energy ETF (NASDAQ:ICLN)
Total assets: US4.94 billion
The iShares Global Clean Energy ETF was created on June 24, 2008, and has a large portfolio of domestic and international stocks.
An analyst report on the ETF states that it likely doesn’t deserve a large weighting in an investor’s long-term portfolio. It suggests that the fund could be useful as a satellite holding that looks at a fraction of the market that is often overlooked by less focused ETFs.
Three of the iShares Global Clean Energy ETF’s top-weighted holdings include: First Solar (NASDAQ:FSLR) with a 8.23 percent weighting, Enphase Energy (NASDAQ:ENPH) at 7.94 percent and SolarEdge Technologies (NASDAQ:SEDG) at 7.27 percent.
First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN)
Total assets: US450.76 billion
The First Trust NASDAQ Clean Edge Green Energy Index Fund, which officially came into existence on February 14, 2007, is a unique member of the alternative energy category, according to ETFdb.com. Why? Because it invests in companies that have interests in different green energy subsectors, such as biofuels, solar energy and advanced batteries.
ETFdb.com also states that because of this ETF’s FOCUS, it may be appealing to investors looking for broader exposure in the alternative energy sector. Three of its highest-weighted holdings are ON Semiconductor (NASDAQ:ON) at 9.34 percent, Tesla (NASDAQ:TSLA) at 8.6 percent and Enphase Energy at 6.24 percent.
Invesco WilderHill Clean Energy ETF (ARCA:PBW)
Total assets: US811.62 million
Begun on March 3, 2005, the Invesco WilderHill Clean Energy ETF focuses on clean energy companies using green and renewable energy and technologies that help with cleaner energy.
Currently this ETF’s top-weighted holdings include Navitas Semiconductor (NASDAQ:NVTS) at 2.27 percent, Wallbox (NYSE:WBX) at 2.18 percent and QuantumScape (NYSE:QS) at 1.9 percent.
ALPS Clean Energy ETF (ARCA:ACES)
Total assets: US547.35 million
The ALPS Clean Energy ETF was formed fairly recently, on June 29, 2018. The majority of the companies in this ETF are based in North America. The top three holdings of the ETF are First Solar, Tesla and Brookfield Renewable Partners (TSX:BEP.UN,NYSE:BEP), with weightings of 7.57 percent, 5.73 percent and 5.5 percent, respectively.
Global X Lithium Battery Tech ETF
Battery manufacturing must increase dramatically (some estimates say by 80-fold) if electric vehicle sales are to progress as expected. Global X Lithium Battery Tech ETF (LIT) tracks an index of lithium mining and refining companies and battery makers around the world.
U.S. lithium firm Albemarle (ALB), as well as Tesla (TSLA) and TDK (TTDKY), a Japanese electronics company, are top holdings. Expect high volatility. However, the fund boasts an impressive three-year annualized return of 40.2%.
Invesco WilderHill Clean Energy ETF
Invesco WilderHill Clean Energy ETF (PBW) is a member of the Kiplinger ETF 20, the list of our favorite exchange-traded funds. It covers a range of renewable-energy sources – wind, solar, hydro, geothermal and biofuel – and clean-energy tech.
The fund has been clobbered recently; its one-year return is a whopping 57.5% loss. But its three-year annualized return, 30.4%, still stands in good stead.
TrueShares ESG Active Opportunities ETF
For a broad portfolio, consider TrueShares ESG Active Opportunities ETF (ECOZ), an actively managed green ETF that invests in companies with low carbon footprints.
The managers favor a specific measure: greenhouse gas intensity. How many tons of GHG are emitted per 450 million of revenue? The GHG intensity of the fund’s holdings is 85% lower than that of the stocks in the SP 500 on average, says TrueShares chief investment officer Jordan Waldrep.
ECOZ has returned 24.2% annualized since its inception in early 2020, which trails the 26.3% gain in the SP 500.
iClima Global Decarbonization Transition Leaders ETF
iClima Global Decarbonization Transition Leaders ETF (CLMA) tracks a proprietary index of innovative companies that deliver products or services making an eco-friendly impact. The green ETF’s holdings include offshore wind energy company Orsted (DNNGY); the all-electric East Japan Railway; and Oatly (OTLY), a plant-based foods company.
Says iClima’s Gabriela Herculano: A lot of funds, think let’s invest in companies doing less harm. We want to FOCUS on innovation. We’re looking forward, looking to the solution. The fund opened in July 2021.
Top Renewable Energy ETFs
Invesco Solar ETF (ticker: TAN): This ETF focuses on solar energy, investing in companies involved in solar equipment manufacturing, project development, and more.
iShares Global Clean Energy ETF (ticker: ICLN): Offering exposure to global companies in renewable energy, this ETF includes wind, solar, and other clean energy sources.
First Trust Global Wind Energy ETF (ticker: FAN): This fund targets companies in the wind energy sector, covering turbine manufacturers, project developers, and service providers.
Invesco WilderHill Clean Energy ETF (ticker: PBW): PBW invests in companies engaged in various areas of clean energy, including solar, wind, biofuels, and energy efficiency technologies.
Risks of Investing in Renewable Energy ETFs
– Market Volatility: Like any investment, renewable energy ETFs are subject to market fluctuations, which can impact their performance.
– Regulatory Changes: Changes in government policies and regulations regarding renewable energy subsidies or incentives can affect the financial outcomes of these ETFs.
– Industry Risks: The renewable energy sector is relatively new and evolving, and investments in this industry carry individual company risks, such as technological advancements, competition, and project execution.
Frequently Asked Questions
Q: What is an ETF? A: An ETF, or Exchange-Traded Fund, is an investment fund that can be traded on a stock exchange, comprising a diversified portfolio of assets.
Q: Are renewable energy ETFs suitable for all investors? A: Renewable energy ETFs can be suitable for investors seeking exposure to the clean energy sector. However, like any investment, individuals should assess their risk tolerance and investment goals before investing.
Q: Can I expect high returns from renewable energy ETFs? A: While the renewable energy sector has growth potential, returns can vary depending on market conditions and individual companies’ performance. It’s essential to evaluate long-term prospects and diversify investments for a balanced portfolio.
Q: Can I sell my renewable energy ETF shares at any time? A: Yes, ETFs are traded on stock exchanges, so investors can buy and sell shares throughout the trading day.
Clean Energy ETFs To Buy
Simply put, clean energy ETFs track stocks that operate in the renewable energy space. For instance, examples of renewable energy are solar, wind, hydroelectric or geothermal energy. In addition, most of these ETFs track the movements of 100 different stocks.
No. 5 SPDR SP Kensho Clean Power ETF (NYSE: CNRG)
The SPDR SP Kensho Clean Power ETF invests in U.S.-listed equities that are included in the clean power sector. This clean energy ETF’s five largest holdings are:
- Consolidated Edison Inc
- Enbridge Inc
- JinkoSolar Holding Co
- Centrais Eletricas Brasileiras SA
- New Jersey Resources Corporation
This fund is up 172% over the past five years but was down 33% in 2021.
No. 4 Global X Solar ETF (Nasdaq: RAYS)
The Global X Solar ETF invests in companies that should benefit from the advancement of the global solar technology industry. Its five biggest holdings are:
- Enphase Energy Inc
- SolarEdge Technologies Inc
- Tianjin Zhong-A
- Longi Green EN-A
- Xinyi Solar Holdings
This fund was started in late 2021 and is down nearly 30% since its launch.
No. 3 Invesco Solar ETF (NYSE: TAN)
The Invesco Solar ETF invests in companies that operate in the solar energy sector. Its five biggest holdings are:
- Enphase Energy Inc
- SolarEdge Technologies Inc
- First Solar Inc
- GCL Technologies Holdings
- Xinyi Solar Holdings
This fund is up 268% over the past five years but was down 48% in 2021. Keep reading for more on the top clean energy ETFs.
No. 2 Invesco Global Clean Energy ETF (NYSE: PBD)
The Invesco Global Clean Energy ETF invests in companies that help the advancement of cleaner energy and conservation. Its five biggest holdings are:
- Tritium DCFC
- Ecopro BM
- LG Energy Solution
- Eolus Vind AB
- Energiekontor AG
This fund is up 90% over the past five years but was down 40% in 2021.
No. 1 iShares Global Clean Energy ETF (Nasdaq: ICLN)
The iShares Global Clean Energy ETF tracks the results of equities in the clean energy sector. In total, this clean energy ETF has 103 different holdings and its top five biggest holdings are:
- Enphase Energy Inc
- Solaredge Technologies Inc
- Consolidated Edison Inc
- Vestas Wind Systems
- Plug Power Inc
This fund is up 124% over the past five years but lost 40% in 2021.
Why Clean Energy ETFs?
“Clean energy” is not a new concept. Society has recognized the need for alternative energy sources for decades. However, there has never been a major catalyst that actually forces the world to make the switch. But, in the past few years, there have been three…
- COVID-19: This pandemic damaged the global supply chain which made it difficult for companies to get products on shelves. Things got so bad that the CEO of Blackrock stated that “globalization is gone for good.” This mentality impacts all U.S. companies, including ones that operate in the clean energy space. This will be good for U.S.-based clean energy and EV companies.
- The Russia/Ukraine conflict: This conflict has cut off the flow of certain raw materials to the rest of the world, which has had many major side effects. Most importantly, it caused gas to skyrocket in the U.S. to over 4 per gallon.
- Improved technology: The technology for clean energy sources is finally reaching a point where it makes financial sense to switch over. This is particularly true with electric vehicles. Tesla delivered just under 1 million EVs in 2021 and is known for producing an exceptional vehicle.
Clean energy is in a position similar to remote work. For years, society recognized that working remotely was feasible. Employees complained that there was no reason to come into the office for eight hours a day, five days a week. However, there was never a major catalyst to shift the status quo. That is, until COVID-19.
With clean energy, the world recognized the need for it but lacked a major catalyst to enforce real change. Now, in the wake of COVID-19, deglobalization, and the war in Ukraine, that might finally be starting to change.
What’s an ETF? Conclusions on Clean Energy ETFs
An exchange-traded fund (ETF) is a fund that owns a large portfolio of securities. The securities that the fund owns are usually in line with the fund’s strategy. There are ETFs that track just about everything. For example, there are ETFs that track the SP 500, real estate, growth stocks, dividend stocks, clean energy stocks and much more.
Inventors prefer ETF investing because it gives you instant diversification. It also eliminates the need to pick stocks, which can be time-consuming and risky if you pick the wrong ones.
You can imagine an ETF like a fruit platter. Instead of picking one specific fruit to eat, you can order the fruit platter and get a small slice of every single fruit. Instead of picking one specific stock to buy, you can buy shares in an ETF and get exposure to tons of different stocks.
I hope that you’ve found this article on clean energy ETFs to be valuable! Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.