7 Top-Performing Clean Energy ETFs

Clean energy investment needs to triple by the end of this decade to mitigate climate change and keep energy market volatility under control, according to the International Energy Agency.

The IEA forecast suggests that governments and other entities need to significantly boost their investments in clean energy such as wind, solar, hydrogen, battery storage, and electric vehicles (EVs). As a result, companies focused on green energy should prosper as more investment flows into the sector over the coming years.

But investors often face a dilemma when assessing a long-term investment trend. They must decide how to best position their portfolio to profit from the upside potential. They could choose to invest in a specific alternative energy stock. However, they risk being right about the thesis (clean energy investment will rise) but invest in the wrong company that underperforms the sector over the long term.

A potential solution to this problem is to invest in an exchange-traded fund (ETF) focused on clean energy. That should reduce the risk of being right on the thesis but picking the wrong green energy stock to express that view.

Seven top clean energy ETFs

Many ETFs focus on clean energy these days, given the amount of money flowing into the sector. Some take a broad approach by investing across the entire industry, while others focus on a single aspect of green energy investing. The different approaches give investors lots of ways to use ETFs to invest in clean energy.

Here's a list of seven of the top ETFs concentrating on various aspects of the clean energy sector:

Here's a closer look at these top clean energy ETFs:

iShares Global Clean Energy ETF

iShares Global Clean Energy ETF

The iShares Global Clean Energy ETF focuses on global companies that produce energy from solar, wind, and other renewable energy sources. The fund had nearly 100 holdings in late 2022, led by the following five:

1. Enphase Energy (ENPH -0.43%): 10.7% of the fund's holdings
2. First Solar (FSLR 1.06%): 6%
3. Vestas Wind Systems (VWDRY 1.33%): 6%
4. Consolidated Edison (ED 1.39%): 5.7%
5. SolarEdge Technologies (SEDG -0.68%): 5.6%

This ETF owns a broad array of clean energy companies. These include businesses that manufacture components, such as wind turbines and solar energy inverters. It also features businesses that operate wind farms and solar energy facilities, such as electric utilities. This strategy allows investors to focus on companies concentrating on producing renewable energy.

However, it's worth noting that the fund concentrates its investments at the top. Its 10 largest holdings make up more than 50% of the fund. Because of that, a limited number of stocks will drive the fund's overall results.

The iShares Global Clean Energy ETF rates highly on environmental, social, and governance (ESG) factors. The fund has a AA rating from MSCI, putting it in the 76th percentile of all ETFs. That makes it an excellent option for socially responsible investors seeking an ESG fund.

The fund charges a relatively low ETF expense ratio of 0.40%.

First Trust NASDAQ Clean Edge Green Energy Index Fund

First Trust NASDAQ Clean Edge Green Energy Index Fund

The First Trust NASDAQ Clean Edge Green Energy Index Fund focuses on clean energy companies that trade on major U.S. stock exchanges. It holds companies that manufacture, develop, distribute, and install clean energy technologies, such as solar, wind, battery storage, fuel cells, and electric vehicles (EVs).

The ETF held more than 60 companies in late 2022, led by the following five:

1. Albemarle Corporation (ALB 1.76%): 9.4%
2. Rivian Automotive (RIVN -0.45%): 8.9%
3. ON Semiconductor (ON -1.48%): 8.5%
4. Enphase Energy: 8.2%
5. Tesla (TSLA 0.02%): 7.3%

This ETF also concentrates its investments among its largest holdings. However, it still offers investors diversified exposure to the clean energy sector but with more of a focus on the electrification of transportation and the energy sector. Its holdings include companies in the renewable energy equipment (23%), automobiles (20%), semiconductors (17%), diversified chemicals (12%), alternative electricity (11%), alternative fuels (4%), specialty chemicals (2%), mining (2%), and electronic components (2%) industries.

The First Trust NASDAQ Clean Edge Green Energy ETF has an AA rating on ESG from MSCI. Overall, it ranks in the 55th percentile of global ETFs on ESG factors.

The fund has a reasonable ETF expense ratio of 0.58%.

Invesco Solar ETF

Invesco Solar ETF

The Invesco Solar ETF focuses on companies in the solar energy industry. That includes companies that manufacture panels and electrical components and install solar energy systems.

The ETF had more than 50 holdings as of late 2022, led by the following five:

1. Enphase Energy: 10.9%
2. First Solar: 9.3%
3. SolarEdge Technologies: 7.4%
4. GCL Technology Holdings: 6%
5. Xinyi Solar: 5%

This ETF's focus on solar enables investors to invest in a basket of the top solar energy stocks. It also offers geographic diversification (fewer than half the fund's holdings are U.S.-listed companies) and some sector diversification (58% of its holdings are information technology companies, 22% are utilities, 15% are industrials, 2% are financials, and 3% are materials). That means it's an ideal ETF to make a directional bet on the upside of solar energy investment.

The Invesco Solar ETF ranks well on ESG, with an A rating from MSCI. Overall, it ranks in the 45th percentile of global ETFs on ESG factors.

The fund charges a reasonable expense ratio of 0.66%.

Invesco WilderHill Clean Energy ETF

Invesco WilderHill Clean Energy ETF

The Invesco WilderHill Clean Energy ETF concentrates on companies listed on U.S. stock exchanges and engaged in advancing clean energy and conservation. The ETF had more than 80 holdings toward the end of 2022, led by the following five companies:

1. Sigma Lithium (SGML -0.52%): 2.1%
2. SES AI (SES 0.37%): 1.8%
3. Vertical Aerospace (EVTL -3.4%): 1.6%
4. First Solar: 1.6%
5. Ormat Technologies (ORA 0.39%): 1.6%

This ETF has an equal-weight strategy, investing a similar amount across a broad array of clean energy companies. This strategy allows investors to take a wide-ranging approach to clean energy. The fund holds companies involved with solar energy, EVs, geothermal energy, energy storage, wind energy, and climate tech. It offers some diversification across sectors (industrials at 45%, consumer discretionary at 18%, IT at 15%, materials at 13%, utilities at 7%, energy at 1%, and financials at 1%).

The Invesco WilderHill Clean Energy ETF has a BBB ESG rating from MSCI, ranking in the 33rd percentile of funds in the alternative energy group.

This ETF has a reasonable expense ratio of 0.62%.

ALPS Clean Energy ETF

ALPS Clean Energy ETF

The ALPS Clean Energy ETF seeks to provide investors exposure to a diversified group of U.S. and Canadian companies engaged in renewable and clean energy. That includes solar, wind, hydropower, geothermal and bioenergy, as well as electric vehicles, energy management and storage, and fuel cells and hydrogen.

This ETF had nearly 50 holdings as of late 2022, led by the following five:

1. First Solar: 5.7%
2. Rivian Automotive: 5.6%
3. Enphase Energy: 5.5%
4. Tesla: 5.4%
5. Lucid Group (LCID 0.2%): 5%

The ETF offers fairly broad diversification across sectors and themes. Sector allocations included utilities (29%), industrials (28%), consumer discretionary (17%), information technology (13%), energy (5%), materials (5%), and financials (2%). Meanwhile, theme allocations included electric vehicles (29%), solar (26%), wind (19%), hydro/geothermal (9%), bioenergy (8%), fuel cell/hydrogen (6%), and energy management and storage (4%).

The ALPS Clean Energy ETF rates highly on ESG factors, with a AA rating from MSCI. Overall, it ranks in the 63rd percentile of all ETFs on ESG factors.

The ETF has a reasonable expense ratio of 0.55%.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund

The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund aims to track the performance of companies in the grid and electric energy infrastructure sector.

The fund had more than 80 holdings as of late 2022, led by the following five:

1. Schneider Electric (OTCMKTS:SBGSY): 9.1%
2. Eaton Corporation (ETN -0.19%): 8.8%
3. ABB (NYSE:ABB): 8.6%
4. Enphase Energy 7.2%
5. National Grid (NGG 0.35%): 7%

This ETF offers exposure to the following sectors: electrical components (26%), diversified industrials (13%), renewable energy equipment (11%), multi-utilities (8%), conventional electricity (7%), semiconductors (7%), engineering and contracting services (5%), electric components (4%), electric equipment control and filter (4%), and auto parts (4%).

The First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund has a AAA rating from MSCI. Overall, the fund ranks in the 79th percentile of all funds.

This ETF has a 0.63% expense ratio.

First Trust Global Wind Energy ETF

First Trust Global Wind Energy ETF

The First Trust Global Wind Energy ETF focuses on wind energy. It holds two types of wind energy companies:

• Pure-play companies that get at least 50% of their revenue from wind-related activities (60% of the fund).
• Diversified companies that have some involvement in the wind industry (40% of the fund).

This fund had more than 50 holdings in late 2022, led by the following five:

1. Northland Power (NPIFF 1.79%): 7.6%
2. Orsted (DNNG.Y -1.01%): 7.4%
3. Vestas Wind Systems: 7.1%
4. China Longyuan Power Group Corporation Limited (CLPXY 0.08%): 6.3%
5. EDP Renovaveis (OTCMKTS:EDRVF) 6.2%

This ETF's focus on wind energy makes it ideal for those who want to invest specifically in the growth of the sector. It also offers broad geographic diversification and exposure to diversified companies with some wind activities to complement its wind energy pure plays.

The First Trust Global Wind Energy ETF rates highly on ESG factors, with a AAA rating from MSCI. Overall, it ranks in the 79th percentile of all ETFs on ESG factors.

The ETF has a reasonable expense ratio of 0.60%.

Clean energy ETFs offer a broad approach to investing in the sector

These ETFs allow anyone to easily invest in one or more aspects of clean energy. Some focus on a specific type of alternative energy, such as wind power or solar energy, while others offer broader exposure across the entire clean energy investment landscape. That allows investors to target a green energy trend, which should help reduce the risk of picking an underperforming clean energy stock.

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