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This year we may see the clean-tech megatrend finally gather enough momentum to become more than just a catchphrase.
Below I list a handful of exchange traded funds (ETFs) for investors to gain entree to the clean-tech and renewable-energy revolution.
Consultant Bain & Co. called COVID-19 a “dress rehearsal for dealing with climate change” as the world was challenged to urgently rethink the old ways of doing things. In November, Democrats won big with a mandate to tackle sustainability issues — as evidenced by President Biden rejoining the climate-focused Paris Agreement right away. And to top it off, European carbon markets has had record prices steadily driving up costs for polluters as the European Union prepares for deeper emissions cuts.
If you look at the biggest names in the S&P 500 SPX, +0.98%, the only “clean tech” company you might spot is Tesla Inc. TSLA, -3.32%. But the fact remains that there are a lot of companies building a more sustainable global economy and developing tomorrow’s clean-tech solutions.
If you don’t want to get lost in analyst reports researching these individual stocks, however, and simply want to play this megatrend in a diversified way, ETFs offer a great way in to the clean-tech revolution.
Here are five such funds to consider.
iShares Global Clean Energy ETF
For investors looking to cast a wide net in an established and liquid fund, the iShares Global Clean Energy ETF ICLN, +2.26% is a simple and effective option. It has been trading on public markets since 2008, currently boasts almost $7 billion in assets and trades north of 10 million shares daily.
ICLN is also truly diversified, with stocks in many nations and a footprint in all parts of the alternative-energy ecosystem. Top holdings at present include hydrogen fuel-cell stock Plug Power Inc. PLUG, +1.33%, solar cell and battery storage play Enphase Energy Inc. ENPH, +8.22% and even Austria-based utility Verbund AG VER, +0.20%, a major player in hydroelectric- and wind-power generation.
With slightly more than a third of total assets allocated to U.S. stocks, you can be sure that you’re not just getting roped in to the latest Silicon Valley fads. But admittedly, one drawback of ICLN may be its narrow focus. It has a small list of only 30 or so holdings, and in the past year has only turned over about 40% of its portfolio to hint that the list is very likely to look the same in the future.
Still, its size and maturity make this iShares fund worth a look — as do gains of more than 110% over the past 12 months of trading.
Invesco WilderHill Clean Energy ETF
If you think those gains are impressive, then you may want to take a close look at the Invesco WilderHill Clean Energy ETF PBW, -1.02%. This fund is up more than 250% in the past 12 months.
Another global fund that looks to touch various segments of the clean-tech economy, this Invesco ETF has roughly double the holdings at just under 60 positions at present with about two-thirds of that in U.S. stocks. But unlike the aforementioned iShares fund, you’ll find smaller and less established names near the top of its portfolio. That includes solar-power players ReneSola Ltd. SOL, -10.39% and Daqo New Energy Corp. DQ, -6.30%.
Thanks to the smaller footprints of its components and a deeper list of holdings, PBW is a bit less top-heavy with only 27% of assets in the top 10 positions. That gives a more truly diversified look across the sector instead of reliance on a handful of names. It is a bit pricier than some other alternative-energy funds, however, with annual fees that tally 0.70%, or about $70 each year on a $10,000 investment.
Still, that comparatively expensive cost structure may be worth it given the different makeup of this fund. And based on recent outperformance, PBW certainly has the opportunity to more than pay its own way if things go well.
Invesco Solar ETF
Looking in a more focused way at the solar-panel industry, the Invesco Solar ETF TAN, +1.52% is a popular way to play clean tech with a direct investment in this important alternative-energy industry to the exclusion of other stocks.
TAN is perhaps unsurprisingly limited in its portfolio size, with 30 or so positions. But it is not a niche fund when it comes to assets under management, with a hefty size of nearly $5 billion. It’s a global fund, too, spanning the major U.S. and Chinese firms in the space. In other words, if solar is what interests you most, then TAN is a simple one-stop shop to play this subsector of clean tech.
Investors should think long and hard about that decision, however, as solar stocks have been notoriously volatile over the past few years. Short-term trends can be hard to predict, and at times we’ve seen plummeting prices for solar cells put a hurt on manufacturers. We’ve also seen well-intentioned attempts at solar-power projects go under despite big government backing — from the decades-old story of Solyndra to more recent flops like Tonopah Solar Energy, which went under in 2020 with $425 million in unpaid loans outstanding from the Department of Energy.
Of course, with more than 200% gains in the past 12 months, it’s undeniable that higher risk in this solar fund can also come with the potential for higher rewards.
First Trust Global Wind Energy ETF
While solar is perhaps the most high-profile clean-energy source out there, thanks to a preponderance of companies trying to convince you to put panels on the roof of your home, investors should not overlook wind energy’s important role in a sustainable future. And the First Trust Global Wind Energy ETF FAN, +1.30% is all about wind turbines and their long-term potential.
At the end of 2020, we learned that wind power accounted for more than half of the U.K.’s power generation for the first time. While the U.S. is lagging far behind that, with just 7% of our current generation from wind power, the share is steadily rising — and if you’ll pardon the pun, this sector definitely has the wind at its back now that Democrats are in power.
In the near term, however, FAN is powered by the big names overseas, including Denmark’s Vestas Wind Systems A/S VWDRY, +3.31% and Spain-based Siemens Gamesa Renewable Energy GCTAY, +1.81%. And though its holdings total nearly 50 stocks, only roughly 12% or so of assets are in U.S.-based companies at present. But this may be entirely appropriate given the big strides Europe has made on clean-tech investments in the sector.
While this clean-tech ETF is up “only” 60% in the past 12 months, it may be increasingly interesting if and when the U.S. embarks on big investments in wind as an alternative-energy source in the coming years.
Global X Autonomous & Electric Vehicles ETF
If you’re not afraid of going all-in on a narrow segment of the market, then you may be wondering why we haven’t discussed electric vehicles yet and how to play them with an ETF. Well, unfortunately there is no pure-play EV fund that offers the same kind of scale and depth that the prior funds do. That’s because electric cars and trucks are partly about clean tech, but also involve all manner of other manufacturing angles.
One ETF that gets close to a play on the EV trend is the Global X Autonomous & Electric Vehicles ETF DRIV, -0.71%. As the name implies, it also includes the software and hardware companies working on self-driving technology like chipmaker Nvidia NVDA, +1.03% and Microsoft Corp. MSFT, +2.59%, which just partnered with legacy automaker General Motors GM, +3.45% on its autonomous-vehicle efforts.
At the top of the list are the names you’re looking for, like Tesla, Plug Power and Chinese EV giant Nio Inc. NIO, +2.13% as the top three holdings, in that order.
Also by Jeff Reeves: Nio, not Tesla, is the better EV stock pick for 2021
Again, this is not a pure play on clean tech because the nearly 80 holdings branch out pretty widely. But it has about $700 million in assets and strong volume that tops 500,000 shares almost every trading day. If you want to play the EV side of the clean-tech megatrend but don’t want to go all-in on a single stock, DRIV could be worth a look.
