Sustainability is a deceptively complicated term that touches virtually every part of the economy. But simply put, investing in clean energy is centered around the belief that the global energy mix will continue to incorporate fewer fossil fuels and more low-carbon solutions. This can mean renewable energy like solar, wind, and hydroelectric power. But it can also include emission reductions across the oil and gas industry, hydrogen blending with natural gas, and other efforts.

With net assets of $817.9 million, the Invesco WilderHill Clean Energy (PBW -3.88%) exchange-traded fund (ETF) isn't the largest ETF out there. But it has a lot of characteristics that investors may be drawn to. Here's why it is my top ETF to buy now.

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A primer on the ETF

The ETF tracks the performance of the WilderHill Clean Energy Index, which is focused on a wide variety of companies that are making or investing in solutions to fight climate change. 

The index has been around since 2004 and is one of the most well-known indexes for tracking the energy transition. However, one drawback of the index is that it is mainly focused on North American companies, which can limit exposure to foreign markets that are investing in renewable energy in lockstep with industrialization. However, there are plenty of U.S.-based companies with sizable international portfolios, so this may not be an issue for some investors.

Unique advantages with some drawbacks 

The biggest distinction between this ETF and other funds is that it is highly concentrated in small-cap growth stocks and doesn't have a single position weighting above 3%. 

42.3% of the fund is in industrial stocks, 18.3% is in information technology, 17.7% in consumer discretionary, 12.5% in materials, 7.1% in utilities, and 2% in other. This is in contrast to other clean energy ETFs like the iShares Global Clean Energy ETF (ICLN -2.06%) or the First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN -3.65%). Both of these funds have the bulk of their holdings in utilities, semiconductors, and tech stocks. They also tend to concentrate about half of their holdings on 10 stocks that are well-known industry-leading companies with large market caps. 

In many ways, concentrating an ETF in proven winners is a safer alternative than having a ton of low-weighted positions. But when it comes to investing in the clean energy transition, there are many companies with breakout potential that could benefit from a more equally weighted structure.

Possibly the easiest way of understanding the difference between the Invesco WilderHill Clean Energy ETF and an ETF like the Clean Edge Green Energy fund is that the former has Tesla (TSLA -3.14%) at 2% of the fund, SolarEdge Technologies (SEDG -6.92%) at 1.3%, and Enphase Energy (ENPH -4.32%) at 0.9%. The Clean Edge Green Energy fund has over 20% of its holdings in these three stocks alone. 

The same pattern can be seen for other categories of clean energy. Take lithium producers, for example. 12.5% of the WilderHill Clean Energy ETF is scattered across nine different lithium producers and materials companies, including just a 1.3% position in Albemarle (ALB -2.69%) and a 1.4% position in Sociedad Quimica y Minera de Chile SA (SQM -3.94%) -- two of the more well-known lithium producers. But in the Clean Edge Green Energy fund, Albemarle and SQM on their own make up around 10% of the fund. 

Risks to consider

Underweighting industry leaders and overweighting the less-proven smaller-cap companies concentrates a larger share of the portfolio on growth. It also prevents a major hit to the fund if a single heavily weighted holding suffers a steep sell-off.

But in reality, a lot of small-cap companies are correlated. If investment in the energy transition dries up or there's another unforeseen sector-wide headwind, smaller-cap funds will be harder hit than ones concentrated in larger companies that tend to have stronger balance sheets and business models capable of weathering a storm. In fact, we are seeing the dynamic play out now in today's climate of higher interest rates and inflation, as the Invesco WilderHill Clean Energy ETF has underperformed many other clean energy ETFs over the last few years.

The Invesco WilderHill Clean Energy ETF has 10.9% of its holdings in small-cap value, 22.1% in small-cap blend, and 39% in small-cap growth. It has another 17.3% in mid-caps -- leaving less than 9% of the fund in large-cap stocks. 

With many small-cap stocks in a major bear market, it's no surprise that the Invesco WilderHill Clean Energy ETF is hovering right around a three-year low. It certainly isn't the safest ETF. And I wouldn't even call it a foundational place to begin investing in clean energy. But if you like growth and betting on less proven companies, then this ETF is certainly worth a look.