Clean energy ETFs are pools of stocks from clean energy companies. Companies included in a green energy ETF can be from across the energy sector, focusing on production, emerging technology, or anything that intersects with alternative energy. You could invest in a solar exchange-traded fund, in funds that target emerging green technology, or funds that include traditional energy companies with a new focus on sustainability.

Clean energy ETFs operate like any other exchange-traded fund, but they focus specifically on investing in companies that produce sustainable energy.

Renewable energy ETFs are in the equity asset class. A green energy ETF can invest in various energy and technology sectors, such as solar or wind power.

What are the pros and cons of clean energy ETFs?

If you’re thinking of investing in clean energy ETFs, it’s important to know the upsides, downsides, and potential risks.

Pros of clean energy ETFs

Future-forward investments:

Clean energy exchange-traded funds are all about investing in a better future for the planet. Unquestionably, clean energy will be a critical development in the future economy to address climate change and the growing need for renewable energy.

Invest in line with your values:

Care about Earth? If so, clean energy ETFs allow you to put your money to good use by investing in companies that share your beliefs. Doing so helps them grow and thrive, not to mention share their profits with you. Clean energy ETFs will also diversify your energy investments, as they allow you to invest in a combination of different energy stocks.

Government initiatives:

New initiatives could potentially boost energy companies’ success as climate change becomes a more present concern to global governments. For example, the implication of green initiatives could cause significant increases in value in stocks based on solar energy, electric vehicles, and wind energy.

Cons of clean energy ETFs

Past and potential future volatility:

Like any investment, past performance of clean energy ETFs is not an indication of future results. There are no guarantees and investing requires an iron stomach for volatility.

‍A narrow investment sector: While ETFs diversify your financial portfolio, some argue the clean energy sector is limited, especially when compared to the entire energy sector, which includes oil and gas reserves and refining. As a whole, the energy sector has a variety of ETFs available. If you want to focus on clean energy exchange-traded funds specifically, you eliminate other energy ETFs that could help you achieve your financial objectives.

Where does an energy ETF primarily invest in?

Chances are likely you can find energy ETFs that fit your objectives, investment style, and values. That’s because they invest in various companies across the energy sector (natural gas, wind, solar, electric vehicle, hydroelectric, biofuels, hydrogen, and geothermal stocks, to name just a few). 

Here’s a list of energy ETFs and where the funds invest.

First Trust Natural Gas ETF 

This fund tracks companies that utilize natural gas technology and production and has an expense ratio of 0.6%.

Invesco Dynamic Energy Exploration and Production ETF (PXE)

This fund follows the Dynamic Energy Exploration and Production Intellidex index. Focusing on companies that use natural resources for energy production, it invests in petroleum refineries, natural gas companies, and small-cap and mid-cap companies.

First Trust NASDAQ Clean Energy ETF (QCLN)

The First Trust Nasdaq Clean Energy ETF focuses on the First Trust NASDAQ Clean Edge Green Energy Index and invests in the clean energy industry as a whole. 

iShares Global Clean Energy ETF (ICLN)

This fund holds 112 stocks and is currently one of the largest clean energy ETFs in existence. The fund focuses on industrial technology that develops clean energy and utilities and has a low expense ratio of 0.46%.

Invesco WilderHill Clean Energy ETF (PBW)

This clean energy fund focuses on clean energy and conservation.

Invesco MSCI Sustainable Future ETF (ERTH)

If you want to invest in clean energy and sustainability in general, this ETF invests widely in companies focusing on sustainability and clean energy stocks. The fund has an expense ratio of 0.58%.

There is no short answer where energy ETFs invest; some invest in companies that focus on production, others in new technology, and some in traditional energy companies that have just started to recognize the environmental importance and profitability of clean energy.

How do I invest in clean energy ETFs?

The primary way to invest in an ETF is with a brokerage account; typically, you add the funds you would like to invest and place your order through your broker. When investing in clean energy ETFs, you should consider many of the same things you would with any fund. Different energy ETFs will have different expense ratios, the number of assets under management, diversity, investment styles, and volatility. 

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