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What are the best clean energy ETFs with high returns? Finding the top clean energy ETFs for your portfolio can be challenging with all the options out there.
Investing in clean energy exchange-traded funds (ETFs) can provide strong returns while also supporting the fight against climate change.
As governments, corporations, and individuals take steps towards sustainability, renewable energy sources like solar and wind are seeing massive growth. This creates major opportunities for investors.
In this blog post, we’ll break down the investment case for clean energy ETFs and how to pick the best ones for your portfolio. You’ll learn:
- Key factors driving growth in renewables
- What to look for when selecting top clean energy ETF funds
- Which ETFs have delivered the highest historical returns
- How policy, technology and public sentiment affect future returns
- Strategies to maximize gains over the long run
So if you want exposure to the booming clean energy sector while earning attractive returns, read on!
The Growing Investment Case for Clean Energy
There are several key factors driving increasing adoption of renewable energy and making clean energy ETFs compelling long-term investments:
Declining Costs Making Renewables Cost-Competitive
The costs of solar and wind power have dropped dramatically in the last decade, making them price competitive with fossil fuel sources like coal and natural gas on an unsubsidized basis. As installation costs fall, it makes economic sense for utilities to expand their renewable energy capacity.
With renewable energy economics becoming increasingly favorable, growth in capacity is accelerating in markets across the globe. This benefits clean energy companies and assets like the ones held by green ETFs.
Government Policies and Incentives Supporting Clean Energy
Governments from China to the United States to the European Union have enacted policies to encourage sustainable power generation and reduce carbon emissions from the electricity sector. These include:
- Tax credits – federal tax credits can cut 30% or more off the costs of residential solar installation and large-scale wind farms
- Renewable Portfolio Standards – require utilities to source specific % from renewables
- Feed-in tariffs – guaranteed pricing for supplying renewable electricity to the grid
- Net metering – allows solar panel owners to get credit for excess power sent back to the grid
These measures stimulate demand for equipment like solar panels, wind turbines, batteries, etc. and support continued growth. With bipartisan political support strengthening, government policies provide a supportive backdrop.
Corporations Adopting Ambitious Sustainability Goals
Major corporations in every industry are announcing plans to aggressively reduce emissions by switching to renewable energy.
Google, Apple, Amazon, Walmart and hundreds of others have pledged to power operations with 100% renewable energy, while oil majors like BP and Shell aim to hit net zero emissions by 2050 or sooner.
This drives enormous new investment in wind, solar, geothermal and other zero-carbon technologies to supply clean electricity and green hydrogen fuel at mass scale.
Goldman Sachs estimates that $16 trillion will be invested in renewable power sources globally by 2030 as a result. This honors the revenue and profit outlook for clean energy stocks and funds.
Innovation Expanding Capabilities of Solar, Wind, Geothermal etc.
Technological improvements are expanding what’s possible with renewable energy, including:
- More efficient solar panels
- Larger, more powerful turbine designs
- Advances in energy storage capacity
- Precipitous cost declines for Li-ion batteries enabling growth in electric vehicles
- Enhanced geothermal extraction techniques
- Offshore wind farms scaling up globally
- Hydrogen fuel cell transportation showing promise
As next gen technologies emerge from R&D into commercial viability, new market opportunities arise while allowing further disruption of fossil fuel incumbents.
Finding the Best Clean Energy ETFs With High Returns
When selecting a clean energy ETF, there are several key characteristics to evaluate:
Sector Exposure
- What mix of renewable energy sources, such as solar, wind, geothermal and hydroelectric power producers?
- Holdings focused on clean energy utilities, manufacturers (e.g. inverters, turbines), raw material suppliers, etc.?
- Inclusion of emerging clean technologies like hydrogen, grid modernization, battery storage, EVs, etc.?
Geographical Diversification
- Global Mandate or specific regional focus like U.S., Europe, China or emerging markets?
- Country concentration risks based on largest markets for target sectors?
Fund Metrics
- Assets under management
- Average volume/liquidity
- Expense ratio
- Index methodology
Risk Factors
- Underlying price volatility
- Sensitivity to policy changes
- Foreign currency exposure
- Individual stock concentration
Historical Performance
- Total returns over multiple time periods
- Risk-adjusted returns
- Performance relative to category benchmark
With these aspects in mind, below are some top clean energy ETFs to consider based on returns, diversification, fees and more.
ICLN – iShares Global Clean Energy ETF
- $6.3 billion in assets under management
- 30% average annual returns over past 3 years
- Global scope with 200+ holdings across clean energy value chain
- 0.42% expense ratio
- Index follows sustainable investing criteria
PBW – Invesco WilderHill Clean Energy ETF
- $1.7 billion AUM
- Concentrated portfolio of just 48 stocks
- 37% average annual returns over 5 years
- High exposure to U.S. solar and electric vehicle stocks
- 0.70% expense ratio
TAN – Invesco Solar ETF
- $3 billion AUM
- Focus on solar energy equipment providers and material suppliers
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To summarize, clean energy ETFs offer an avenue to invest in the accelerating growth of renewable power while earning attractive returns over the long run.
By selecting well-managed funds with a balance of diversified holdings, performance history and reasonable fees, investors can position themselves to profit from the world’s transition to sustainable energy.
FAQs
Which Is The Best Clean Energy Etf?
There are several excellent clean energy ETF options, but one of the top choices is the iShares Global Clean Energy ETF (ICLN). ICLN tracks an index of global stocks across the clean energy sector like solar, wind, hydroelectric, and geothermal power companies.
With over $6 billion in assets under management and holdings diversified across countries, ICLN offers broad exposure to many leading renewable energy stocks.
It has delivered strong returns historically as well, averaging 30% annually over the past 3 years. Just keep in mind it has some volatility.
What Is The Largest Green Energy Etf?
The largest green energy ETF by total net assets is the iShares Global Clean Energy ETF (ICLN) with over $6 billion under management as of February 2023. ICLN has seen rapid growth in AUM as interest in renewable energy investing increases.
Some other sizable green energy ETFs are Invesco’s Solar Energy ETF (TAN) and WilderHill Clean Energy ETF (PBW) which each have around $3 billion in assets currently.
Is Global Clean Energy Etf A Good Investment?
The iShares Global Clean Energy ETF (ICLN) stands out as a particularly good investment if you’re bullish on renewable energy. It delivers targeted exposure to fast-growing clean electricity sources like solar, wind, and hydroelectric power.
ICLN owns over 200 stocks across both emerging markets and developed economies, providing geographic diversification too. As costs fall, government policies incentivize adoption, and energy transition accelerates, clean energy funds like ICLN are well-positioned. Just keep in mind sharp pullbacks are possible if political winds shift.
What Is The Best Performing Energy Etf In 2023?
While 2023 just started, some of the top performing energy ETFs include those focused on clean renewable sources like the Invesco WilderHill Clean Energy ETF (PBW), the SPDR S&P Kensho Clean Power ETF (CNRG), and the iShares Global Clean Energy ETF (ICLN). These funds provide exposure to solar, wind, hydroelectric and other low or zero emissions energy stocks. More traditional broad energy ETFs like VDE, XLE and FENY have also done well year-to-date as oil and gas prices rebounded. But they lack the big growth potential from the ongoing rise of renewables.
What Etf Makes The Most Money?
There is no definitive ETF that makes the most money overall. Returns vary widely by year and asset class. But some consistent top performers are:
- ProShares Ultra S&P 500 ETF (SSO) – Uses leverage to amplify returns of the broad index
- Fidelity Nasdaq Composite Index Tracking Stock ETF (ONEQ) – Concentrated portfolio mirrors fast-growing Nasdaq 100 stocks
- iShares Expanded Tech-Software Sector ETF (IGV) – Tech sector growth provides strong capital appreciation
These and some clean energy ETFs can produce high total returns over long periods, but also carry higher volatility.
What Is The Top 3 Etf?
While there is no consensus top 3, some of the largest and most widely-held U.S. ETFs include:
- SPDR S&P 500 ETF (SPY) – Tracks the S&P 500 index of large U.S. companies
- Vanguard Total Stock Market ETF (VTI) – Broad exposure to total U.S. stock market
- Invesco QQQ ETF (QQQ) – Tracks the Nasdaq 100 index of major non-financial stocks
Some benefits these mega-cap ETFs share are diversification across sectors and stocks, high liquidity for easy trading, and relatively low costs.
What Is The Fastest Growing Etf?
Though growth rates fluctuate yearly, some of the fastest growing ETFs in terms of assets under management over the last 5 years include:
- iShares Global Clean Energy ETF (ICLN)
- Vanguard S&P 500 ETF (VOO)
- Vanguard Total Stock Market ETF (VTI)
- Invesco QQQ ETF (QQQ)
- iShares Core S&P 500 ETF (IVV)
These have expanded in size rapidly due to strong stock market performance and increasing numbers of investors allocating towards ETFs for the tax efficiency, diversification and ease of access they provide.
What Is The Best Environmental Etf?
Some highly rated environmental ETFs to consider are:
- iShares Global Clean Energy ETF (ICLN) – Clean energy stocks
- Invesco Solar ETF (TAN) – Solar industry companies
- SPDR S&P Kensho Clean Power ETF (CNRG) – Innovative clean tech stocks
- VanEck Vectors Low Carbon Energy ETF (SMOG) – Low carbon oil, gas and coal leaders
These provide exposure to companies involved in renewable energy, emissions reduction technologies, resource efficiency, and more. ICLN stands out for broader diversification across the growing clean energy space. Just be aware environmental funds often see amplified volatility.
What Is The Safest Etf To Buy?
Some of the safest ETFs to invest in include:
- Schwab U.S. Aggregate Bond ETF (SCHZ) – Over 9,000 bond holdings provide stability
- iShares Short Treasury Bond ETF (SHV) – Holds U.S. treasuries with under 1 year maturities
- SPDR Portfolio Short Term Treasury ETF (SPTS) – Sticks with short-duration government bonds
Bond ETFs reduce volatility and provide steady income in contrast to riskier stock funds. These particular options concentrate solely on U.S. treasuries or highly-rated corporate debt for minimal credit risk on top of the safety of short-term holdings.
How Many Etfs Should I Invest In?
Most experts suggest owning somewhere between 5-10 ETFs to start out. This provides sufficient diversification across different assets classes (stocks vs bonds) and market sectors.
Any more beyond 10 ETFs often leads to over-diversification without meaningfully reducing portfolio risk. It also becomes harder to appropriately allocate capital and rebalance your investments strategically with a large number of fragmented positions.
Conclusion
To wrap up, we’ve covered what to look for when selecting high return clean energy ETFs – seek broad sector exposure, solid risk-adjusted historical returns, large assets under management, and reasonable fees.
ICLN, PBW and TAN check most boxes. This young but fast-evolving space still offers immense potential if you build positions strategically. As always connect with me via the comments to discuss renewable investing tips further.
