The green revolution is upon us, and climate change is important in all contexts, including the financial markets. Investing in companies with interests in energy from renewable sources, such as wind and solar, remains popular.
That’s why I’ve reviewed the biggest British, European, US, Australian, and Canadian companies. I’ve included pros and cons, and recent performances of my top clean energy ETF picks.
Discover: My guide to the Best ETF trading platforms UK.
The best clean energy ETFs of October 2024
Here are 5 of the best clean energy ETFs to buy in October at a glance:
- iShares Global Clean Energy Fund – Largest clean energy ETF in the world
- Kensho Clean Power Index – Suitable for those who want interests in utilities and technology
- Invesco Solar ETF – Focuses on the solar sector
- First Trust NASDAQ Clean Edge Green Energy Index Fund – Offers investors exposure to a variety of markets
- Invesco WilderHill Clean Energy ETF – High dividend yield
This is the largest clean energy ETF in the world with more than $4.5 billion in assets under management. More than 50% of the fund’s investments are focused on its top 10 largest holdings, including Enphase Energy Inc., First Solar, Vestas Wind Systems, Consolidated Edison, and SolarEdge Technologies Inc.
That’s something to take into consideration as a slump for these renewable energy companies can have a greater impact on the fund than the rest of the stocks combined. The iShares Global Clean Energy Fund has a score of 7 on Fidelity’s Synthetic Risk and Reward Indicator (SRRI), which is classed as “higher risk” and “potentially higher returns”.
The dividend yield is 0.54% (November 2022) and the expense ratio is 0.40%, which is relatively low compared to other alternative energy funds. iShares Global Clean Energy Fund scores high on ESG factors and its five-year return (as of May 2023) was 15.10%.
- Fund Size: $4.5 billion
- Annual Charge: 0.40%
- Dividend Yield: 0.54%
- Best for: Investors looking for an established ETF with a higher risk and reward rating.
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This clean energy ETF has a broad spread of holdings, including interests in Maxeon Solar Technologies Ltd, First Solar, General Electric Co, and Algonquin Power & Utilities Corp. Unlike some popular clean energy ETFs, Kensho has a fairly even distribution of investments, with just 16% of its portfolio in the top five holdings.
This green energy index may be suitable for those who want interests in utilities and technology. Having a stake in these areas allows the index to be at the forefront of innovations within the sector.
The fund’s risk score of 0.28 is just above the category average of 0.270 when the Equity Energy benchmark is used. This fund also has a two-star rating from Morning Star and an overall return score of 5/5 on the Lipper Leader Scorecard. Finally, the average three-year return for the Kensho Clean Power Index is 23.8%.
- Fund Size: $335 million
- Annual Charge: 0.45%
- Dividend Yield: 0.77%
- Best for: Investors who want to focus on the technology involved with green energy.
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The annual expense ratio for this ETF is fairly high compared to other alternative energy ETFs. That’s something to consider before you invest. However, it does own alternative energy stocks in some of the sector’s biggest names, including Enphase Energy Inc, SolarEdge Technologies Inc., and GCL Technology Holdings.
What’s also worth noting that Invesco Solar ETF focuses on the solar sector. It currently owns assets in solar-focused companies around the world. It also has a heavy slant towards IT companies (58% of its holding), which means it’s at the forefront of new solar technology.
The three-year average return for this ETF is 29.5%, and its five-year average is 22.2%. Although it scores 1/5 on the Lipper Leader Scorecard for preservation and 2/5 for its expense ratio, it scores top marks for consistent returns, giving it an overall score of 5/5.
- Fund Size: $2.2 billion
- Annual Charge: 0.66%
- Dividend Yield: 0.13%
- Best for: Investors interested in solar technology and looking for consistency.
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This might be one of the more expensive ETFs, but it has a vast array of holdings across multiple renewable energy-focused sectors. Overall, it has interests in 60+ companies such as Albemarle Corporation and Rivian Automotive.
This portfolio gives First Trust NASDAQ Clean Edge Green Energy Index Fund investors exposure to a variety of markets, including energy equipment, automotive, semiconductors, and diversified chemicals. Therefore, it might be the right clean energy investment if you want a highly diversified portfolio.
The annual dividend for First Trust NASDAQ Clean Edge is $0.2088, which equates to a yield of 0.46%. The average three-year return is over 21% and, between May 2020 and April 2023, its return was 85%. Finally, its risk/return score (as per the Financial Times) was more towards the higher end of the scale, but the Lipper rating was 5/5.
- Fund Size: $1.4 billion
- Annual Charge: 0.58%
- Dividend Yield: 0.46%
- Best for: Investors who want a diversified ETF with an appetite for some risk.
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Invesco WilderHill Clean Energy ETF is ranked among my top five clean energy ETFs because of its high dividend yield. As you can see from my list, 5.08% is above average. However, this high dividend yield does come at a cost.
This ETF owns stocks in over 80 clean energy companies and its annual expense ratio is 0.62%. Recent returns for this index have been below expectations (-22% between February and April 2023).
Despite a slump in 2022 and 2023, this ETF’s five-year average return is still 10.5%. Its risk score, as per the Financial Times, is towards the higher end of the spectrum, but it’s lower than the NASDAQ Clean Edge Green Energy Index Fund. Lipper scores are mixed, but its overall total return rating is 3/5.
- Fund Size: $1.1 billion
- Annual Charge: 0.62%
- Dividend Yield: 5.08%
- Best for: Investors looking for a clean energy ETF with a higher dividend yield.
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Clean energy investment explained
The alternative energy industry is a burgeoning entity but that doesn’t mean every opportunity is profitable. Risk remains a consideration when you invest in any clean energy ETF, and you can only assess risk from a position of knowledge.
So, here are three important questions you should be able to answer before you invest.
What are clean energy ETFs?
A clean energy ETF is an exchange-traded fund that tracks a basket of securities (an index) within the alternative energy industry. Alternative energy sources are outside of traditional, non-renewable methods such as coal and gas.
For example, solar and wind power are types of alternative energy sources. Therefore, companies that utilise these sources and create related technologies, such as smart grid systems and electrical components, are involved in green energy.
Exchange-traded funds (ETFs) track the stock market performance of companies within the clean energy sector. In other words, publicly traded green energy companies are grouped under a single financial product known as an ETF. This gives you the opportunity to invest in multiple global companies using a single product.
How do I invest in Clean Energy ETFs
Major companies involved with clean energy technology can be part of an ETF. From mainstream names involved with electric vehicles, such as Tesla and Rivian Automotive, to energy management companies like Schneider Electric, the industry’s leaders can be grouped under a global clean energy index.
You can invest in a global clean energy ETF using our recommended online investment and trading platforms. You can click here to read more about investment platforms. You can also read through our reviews to find the right investment or trading app.
Once you’ve found a suitable platform, complete the registration process, make a deposit, then search through the available exchange-traded funds (ETFs).
Why Invest in Clean Energy ETFs?
The clean energy transition has made everyone more aware of climate change and our impact on the environment. As such, businesses are adapting which, in turn, means investors are adapting. Today, there are new opportunities within the alternative energy industry.
From wind turbines and electric vehicles to solar microinverters and new ways to produce energy, there are plenty of potentially profitable opportunities. The ETFs below hold clean energy stocks in companies across various sectors, including technology, utilities, automotive, and clean energy generation.
Also consider: My guide to the best renewable energy stocks to buy now UK
Clean energy opportunities
The global renewable energy market was worth an estimated $881 billion in 2020 and, according to Allied Market Research, it will be worth over $1.9 trillion by 2030. This is worth taking note of as an investor or trader, particularly as the International Energy Agency publishes more data. ETFs allow you to have interests in dozens of companies within this sector.
The clean energy ETFs listed in this guide are among the best ones right now, in my opinion. None of them are risk-free and the market is evolving quickly. Therefore, in addition to my picks, you should do your own research.
For example, you might find something interesting in the Nuclear Energy Index, energy storage or wind market. This guide is a great starting point but don’t be afraid to branch off and explore the clean energy technologies market.
Best Clean Energy ETFs FAQs
What is the largest ETF for clean energy?
Are clean energy ETFs a good investment?
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial situation.
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