With countries and organisations across the globe taking actions to reduce carbon emission, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, outlines the best renewable ETFs to watch out for.
Over the last few years there has been a monumental shift towards “green energy” with governments all over the world supporting a plethora of programs to reduce carbon emission. While this movement has not been around for very long, its impact is already being felt.
According to Grand View Research, the amount of renewable energy output is expected to hit 12.6 TWh by 2027, up from 7.3 TWh in 2020. At the same time, the CAGR (compound annual growth rate) will be 7.9%.
The reason for this growth is down to a number of reasons but one of the most influential can be linked to the election of Joe Biden as President of the United States, which provided yet another boost to the economy. Biden’s strategy is geared toward promoting environmental and renewable energy initiatives. Following his inauguration, Biden made one of his first moves, which was for the US to re-join the Paris Climate Agreement. Further still, an executive order was signed a few days later to double the capacity of the country’s offshore wind farms by 2030.
In light of this, renewable energy projects could prove to be very promising and, in the medium term, an excellent investment option. With this in mind, what are the best green ETFs to add to your portfolio?
iShares Global Clean Energy ETF
This Exchange Traded Fund (ETF) allows members to invest in the S&P Global Clean Energy Index, which includes stocks of companies involved in the development of renewable energy. Simultaneously, ETF diversification is flawlessly implemented: by industry, company size, and region, lowering the degree of risk associated with investing in this asset.
If an investor is enthusiastic about renewable energy’s potential prospects, purchasing this fund is a good way to invest in the sector: the ICLN ETF comprises companies from different subsectors. Wind energy, solar energy, and other alternative energy sources are among them. iShares Global Clean Energy is now the biggest fund in terms of assets under management (AUM), making it more liquid and appealing to investors.
Invesco Solar ETF
Invesco Solar focuses on the subsector of solar energy generation and distribution, which accounts for just a portion of the renewable energy sector. The ETF tracks the MAC Global Solar Energy Index’s efficiency. Invesco Solar, like other highly specialised ETFs targeting various subsectors, has just 49 unique titles, from both domestic and foreign firms. It’s worth noting that only three specific names make up a quarter of this ETF’s properties. It is, however, an excellent asset for targeted solar energy investment.
First Trust NASDAQ Clean Edge Green Energy Index Fund
The QCLN from First Trust is another interesting ETF in the alternative energy market. The fund tracks efficiency of the NASDAQ Clean Edge Green Energy Index. The unique feature is that it includes stock in companies that manufacture and distribute “green” energy as well as biofuels, advanced batteries, electric vehicles, and other technologies. This ETF encompasses a broader spectrum of assets with varying levels of risk, implying a higher degree of portfolio diversification. The fund’s precision helped it to show a lower drawdown since the start of the year, at just -1.75 percent.