The clean energy boom is still in its early stages, making it difficult to predict which companies will emerge as top performers. Instead of trying to guess the winners, why not invest in renewable energy ETFs to gain broad exposure to the entire industry?
Below, I have highlighted three top renewable energy ETFs: the iShares Global Clean Energy ETF (ICLN), the Virtus Duff & Phelps Clean Energy ETF (VCLN), and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), for those looking to build a green portfolio.
Renewable energy is steadily replacing fossil fuels as the go-to energy source. Due to climate change concerns and commitments made at the United Nations COP28 Summit, many countries are aiming to triple their renewable energy capacity by 2030 to meet the 1.5°C climate goal. Governments are also incentivizing businesses to adopt greener practices, making the market ripe for green energy expansion.
The U.S. Energy Information Administration (EIA) projects a 17% increase in renewable energy deployment in 2024, adding 42 gigawatts (GW) of capacity and contributing to nearly a quarter of the nation's electricity generation. Federal investments and the demand for decarbonization from both public and private sectors fuel this growth.
Sifting through all of the renewable energy stocks out there can be daunting. While it costs more, buying an ETF makes it easy without having to pick and choose stocks yourself. Moreover, an ETF enables you to spread out your risk and diversify your portfolio, ensuring you're not reliant on a single company.
With the global renewable energy market expected to exceed $2.18 trillion by 2032 (growing at a CAGR of 8.5%), investing in renewable ETFs, which include investments in solar, wind, hydroelectric, and geothermal companies, is a cost-effective way to tap into the sector’s promising growth.
With that in mind, let’s look at the fundamentals of the top three Energy Equities ETFs, beginning with number 3.
ETF #3: First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
Launched and managed by First Trust Advisors LP, QCLN invests in stocks of companies operating across energy sectors in the public equity markets of the United States. It seeks to track the performance of the Nasdaq Clean Edge Green Energy Index and has $703.40 million in assets under management (AUM).
The ETF has a total of 57 holdings, with its top 10 assets comprising 60.12% of its AUM. Its top holdings are Tesla, Inc. (TSLA), with a 10.68% weighting, ON Semiconductor Corporation (ON), at 8.78%, followed by Enphase Energy, Inc. (ENPH), and First Solar, Inc. (FSLR), at 7.24% and 6.51%, respectively.
QCLN has an expense ratio of 0.59%, compared to the category average of 0.55%. Its fund outflows were $19.56 million over the past three months.
It is a reliable dividend ETF with a four-year average yield of 0.37%. QCLN pays an annual dividend of $0.29, translating to a 0.78% yield at the prevailing price level. Its dividend payouts have grown at a 44% CAGR over the past three years.
QCLN has gained 8.9% over the past three months to close the last trading session at $35.16. As of August 1, 2024, the ETF had an NAV of $35.15.
QCLN’s stance is apparent in its POWR Ratings. The ETF has a C grade for Buy & Hold. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked #25 out of 46 ETFs in the Energy Equities ETFs group. In addition to what we stated above, we have also given QCLN a grade for Peer and Trade. Get all QCLN ratings here.
ETF #2: iShares Global Clean Energy ETF (ICLN)
As the name suggests, ICLN invests in companies' stocks within the clean energy sector. This includes utilities, independent power producers, and companies involved in renewable electricity, biofuels, solar energy, wind energy, and hydroelectric power generation. With $2.13 billion AUM, ICLN closely tracks the performance of the S&P Global Clean Energy Index.
While it doesn’t include many companies, its top holdings include ENPH, which has a 7.15% weighting. FSLR is next at 6.82%, followed by MUTUAL FUND (OTHER) and Consolidated Edison, Inc. (ED) at 6.62% and 6.05%, respectively.
The ETF has 103 holdings, with its top 10 assets comprising 52.49% of its AUM. ICLN’s expense ratio is 0.41%, compared to the category average of 0.55%. Over the past month, its fund outflows were $76.32 million.
The fund pays an annual dividend of $0.22, translating to a 1.55% yield at the prevailing price level. Its dividend payouts have grown at a CAGR of 12.4% over the past three years. The fund’s four-year average yield is 1.05%.
Over the past nine months, ICLN has gained 8.6% to close the last trading session at $13.98. It has also gained 5% over the past month. The fund’s NAV was $14.01 as of August 01, 2024.
ICLN’s mixed fundamentals are reflected in its POWR Ratings. The fund has a C grade for Trade and Buy & Hold. Of the 46 ETFs in the Energy Equities ETFs group, it is ranked #24. Click here to see ICLN’s Peer rating.
ETF #1: Virtus Duff & Phelps Clean Energy ETF (VCLN)
VCLN is an exchange-traded fund launched and managed by Virtus ETF Advisers LLC. It invests in companies in the energy, industrial, IT, and utilities sectors, particularly those involved in solar and wind energy and the production, technology, and distribution of clean energy.
The fund has $5.50 billion in AUM and 43 holdings, with its top 10 assets comprising 46.03% of its AUM. Its top holdings are ENPH, with an 8.29% weighting, and FSLR at 8.10%. They are followed by Iberdrola, S.A. (IBE.MC) and Consolidated Edison, Inc. (ED), with 5.01% and 4.93% weightings, respectively.
The ETF’s expense ratio is 0.59%, higher than the category average of 0.55%. VCLN fund inflows were $2.91 million over the past year.
The fund pays an annual dividend of $0.19, which translates to a 1% yield at the current price level. Its four-year average yield is 0.58%. VCLN has returned 18.7% over the past nine months and 6.4% over the past month to close the last trading session at $18.47. The fund’s NAV was $18.72 as of July 31, 2024.
VCLN’s POWR Ratings reflect this promising outlook. The fund has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Trade and Buy & Hold. VCLN is ranked #22 among 46 ETFs in the same group. To access all the VCLN ratings, click here.
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ICLN shares were trading at $13.90 per share on Friday morning, down $0.08 (-0.57%). Year-to-date, ICLN has declined -10.14%, versus a 12.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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