Are clean energy ETFs good bet amid rising oil and gas prices?

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Are clean energy ETFs good bet amid rising oil and gas prices?

 Are clean energy ETFs good bet amid rising oil and gas prices?
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Highlights

  • With the soaring oil and gas prices, substitute energy sources are likely to be in demand.
  • Exchange-traded funds are considered a safer way to invest in the stock market.
  • Clean or renewable energy might have a bright future under the current scenario.

Clean or renewable energy are zero-emission energy sources like wind, solar and hydropower. Not long ago, fossil-based fuels were the primary source of energy. But now, there is increased awareness about the benefits of clean energy vis-a-vis fossil fuel. 

Moreover, the demand for these energy substitutes may grow with the constant rise in oil and gas prices. Besides, OPEC’s decision to keep the production levels to the previously decided 400,000 barrels per day this week might indirectly help the renewable energy sector since the markets expected a further increase in oil prices with no significant supply boost.


So, how will the clean energy exchange-traded funds (ETFs) benefit from the current developments? ETFs are like mutual funds traded in the stock exchanges but are low-priced. Also, clean energy ETFs are funds that have clean energy stocks in the portfolio.

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The ETFs provide investors with an opportunity to diversify the portfolio without investing in individual stocks. In addition, ETFs are less expensive compared to mutual funds and more stable than individual stocks. The renewable energy ETFs have a total asset under management (AUM) of US$15.21 billion, and the average expense ratio is 0.63%. 

Here we will discuss four ETFs with the highest AUM focused on renewable energy.

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 Clean energy ETFs: iShares Global Clean Energy ETF (ICLN), Invesco Solar ETF (TAN), First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), and Invesco WilderHill Clean Energy ETF (PBW) 

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iShares Global Clean Energy ETF (ICLN) 

ICLN tracks a tiered index of clean energy companies globally. The portfolio consists of companies engaged in hydroelectric, solar, wind, biofuels, and geothermal industries.

The iShares ETF was launched by Blackrock in June 2008, and it is an open-ended fund. Its expense ratio is 0.42 percent, and assets under management are US$5.79 billion. The ETF has an average daily volume of US$76.39 million. 

ICLN’s next ex-dividend date is December 13, 2021. It has over 81 holdings. The tracking index is S&P Global Clean Energy. The ETF gave around 14 percent return in one year based on the closing price of US$21.77 on Oct 1, 2021.

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Invesco Solar ETF (TAN) 

TAN tracks the global solar energy companies index, in which the companies are selected based on the revenue generated from a related business. The ETF focuses exclusively on the solar energy segment. 

TAN’s inception was in April 2008. It tracks MAC Global Solar Energy (TR) index. The open-ended fund has an expense ratio of 0.69 percent. The solar energy ETF has US$2.99 billion worth of assets under management, with a daily average volume of US$74.25 million. 

Its coming ex-dividend date is December 20, 2021. Tan has around 46 companies in its portfolio. The ETF yielded around 22 percent return in one year at the closing price of US$81.06 on Oct 1.  

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First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) 

It tracks the US-listed clean energy companies based on their weighted market cap index. 

QCLN was started in February 2007. The ETF is open-ended and has an expense ratio of 0.60 percent. The ETF has US$2.46 billion of assets under management, and its daily average volume is US$15.96 million. 

The ETF has 53 holdings in its portfolio. It tracks NASDAQ Clean Edge Green Energy Index.  

It gave a 39 percent return in one year at the close of US$62.86 on Oct 1, 2021. 

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Invesco WilderHill Clean Energy ETF (PBW) 

It tracks an index of clean energy companies based on modified equal-weighted. PBW is an open-ended fund started in March 2005. The ETF has an expense ratio of 0.61 percent, and the assets under management are US$1.77 billion. The average daily volume is US$29 million.

It tracks WilderHill Clean Energy Index and has over 73 holdings in the portfolio. PBW gave a 24 percent return in one year at the closing price of US$77.50 on Oct 1, 2021.

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Bottomline

The inflows in the US-listed ETF industry were around US$55.5 billion in September, lower than the previous month. ETFs are considered a safe bet to invest in the stock market. However, investors must check the expense ratio, tracking index, and other details. In addition, they should exert caution while investing in financial instruments.

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