It may seem like something of an oddity given that a republican occupies the White House and that oil prices are low, two scenarios often believed to spell doom for alternative energy stocks, but the fact is, green energy exchange traded funds are performing exceptionally well this year.
The proof is in the pudding. The universe of U.S.-listed ETFs continues growing, but as of Wednesday, Oct. 23, just 44 of those products are up at least 30% year-to-date. Several of those 44 are green energy ETFs, underscoring the strength in that group this year.
Approximately a dozen U.S.-listed funds are classified as green energy ETFs, and while that’s a small number relative to the broader ETF universe, there is noteworthy diversity in this group. For example, investors can opt to focus on solar stocks or companies engaged in the wind power ecosystem, or go with a green energy ETF that offers exposure to multiple clean energy themes under one umbrella.
Here are some of the top names among green energy ETFs to consider.
iShares Global Clean Energy ETF (ICLN)
Expense ratio: 0.46% per year, or $46 on a $10,000 investment.
The iShares Global Clean Energy ETF (NASDAQ:ICLN) is one of the oldest and largest green energy ETFs. In fact, ICLN, which debuted in mid-2008, has $376.2 million in assets under management, making it the second-largest green energy ETF overall.
ICLN tracks the S&P Global Clean Energy Index and holds 30 stocks spread across six industry groups. One potential pitfall to be aware of with many green energy ETFs, including ICLN, is exposure to semiconductor stocks. In the case of this iShares fund, chip exposure represents nearly a quarter of the fund’s roster.
Then there’s the China exposure. Although China is the world’s worst polluter, it’s also a voracious user of alternative energy sources, but some analysts see weak demand in 2020 for Chinese solar companies. The world’s second-largest economy represents over 15% of ICLN’s weight.
If either of those headwinds can be kept to a minimum, ICLN’s diverse roster and lack of reliance on a single clean energy concept could keep the fund trading higher into 2020.
ALPS Clean Energy ETF (ACES)
Expense ratio: 0.65%
The ALPS Clean Energy ETF (CBOE:ACES) is about 16 months old, making it one of the newer members of the green energy ETF competition, but the fund has been a stud since coming to market. This year’s gain of more than 22% proves as much. Since coming to market, ACES has amassed nearly $93 million in assets, which is a pretty good haul for a fund of this variety. That puts ACES in the top half of green energy ETFs in terms of size.
Thematically speaking, ACES features a robust platform with exposure to seven alternative energy concepts with weights ranging from 3.73% to 29.45%. Highlighting its uniqueness relative to legacy funds in this category, ACES’ second-largest exposure is a 24.71% weight to efficiency/LED/smart grid technologies, which is overweight that space compared to rival green energy funds.
“LED’s are the key component in most light-producing devices these days and produce the same amount at a fraction of energy use and a similar cost,” according to ALPS. “Smart grid consists of monitors, controls, software and other technologies working together to respond to rapidly-changing electric-grid dynamics affected by changes in usage and production from renewable energy. Collectively, these new technologies represent an unprecedented opportunity to move the energy industry into a new era of reliability, availability, and efficiency.”
Global X YieldCo & Renewable Energy Income ETF (YLCO)
Expense ratio: 0.65%
Many of the stocks residing in many green energy ETFs are small- and mid-cap growth names, meaning they have low yields or no dividends at all. As such, the dividend yields on many traditional green energy ETFs are piddly. By comparison, the Global X YieldCo & Renewable Energy Income ETF (NASDAQ:YLCO) has a trailing 12-month dividend yield of 3.46%. These days, that’s sturdy regardless of asset class.
As its name implies, YLCO is home to an asset class known as YieldCos, which are alternative energy names that meet a minimum dividend standard.
“Such companies may include renewable energy utilities (e.g., solar, wind and hydroelectric power), producers of renewable energy components, producers of biofuels, and other companies involved in the financing, installation, and operation of renewable energy projects, including smart grid technology,” according to Global X.
The dividend buffer keeps YLCO’s volatility low relative standard green energy ETFs as the Global X fund has a standard deviation of just 11%. However, that hasn’t weighed on performance as the fund is higher by more than 11% year-to-date.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
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