Here's how to invest in the planet.
Despite a lack of coordinated U.S. policy on climate change, the nation's renewable energy capacity has surpassed that of coal power generation in 2019. In the coming years, that trend is sure to only accelerate. Moves like this aren't just good for the planet, but also good for investors in renewable energy stocks and other related investments. So if you're looking to position your portfolio to capitalize on this -- or if you're simply looking to hedge against the risks of global warming -- here are seven affordable and accessible exchange-traded funds to consider.
Invesco WilderHill Clean Energy ETF (ticker: PBW)
Tied to the WilderHill Clean Energy Index, a benchmark produced by a leader with more than 15 years' experience tracking the alternative energy sector, this ETF gives you a look at the major domestic names in the space. That includes conventional stocks you may think of like SolarEdge Technologies (SEDG) as well as hydrogen fuel cell company Bloom Energy Corp. (BE) and smart grid energy infrastructure stock Myr Group (MYRG). Collectively, the 40 stocks in the fund add up to a pretty diversified look at alternative energy companies in America.
iShares Global Clean Energy ETF (ICLN)
A broader way to focus on clean energy by incorporating a global approach, ICLN covers publicly traded companies that are engaged in solar, wind and other renewable power sources around the world. There's a bit of overlap here, including Solaredge as ICLN's top holding, but there's also New Zealand utility Contact Energy (COENF), Austria's Verbund AG (OEZVY) and other international electricity providers. The drawback here is that with only 30 companies and a focus on large-scale utility stocks like this, you get fewer of the component manufacturers and service stocks that appear in PBW. So while more geographically diverse, investors should be aware of the focus on power generation players.
Invesco Solar ETF (TAN)
Though more specialized, TAN tracks about two dozen solar energy players including First Solar (FSLR), Enphase Energy (ENPH) and Sunrun (RUN). But while being a more focused ETF in the alternative energy space, TAN still has strong investor interest as measured by its nearly $500 million in assets under management and average daily volume of about 300,000 shares. Solar stocks are the go-to alternative energy investment for many on Wall Street and TAN allows you to play this subsector in one simple instrument. Just remember that it's more volatile that other broader energy funds.
First Trust ISE Global Wind Energy Index Fund (FAN)
While solar energy may be the first alternative energy source most people think of, the reality is that wind turbines alone account for more than 8% of total energy generation in the U.S. That's on par with both nuclear capacity and hydroelectric power capacity, and significantly ahead of the 3% share of solar. The problem for investors is that there aren't that many wind companies. But the FAN ETF does wrap up some of the biggest dedicated plays like Denmark-based Vestas (VWSYF) as well as firms like General Electric Co. (GE) that are major producers of wind turbines and related technologies. Together, these components represent the big potential of wind energy.
Invesco Cleantech ETF (PZD)
If you want smaller players with growth potential or a focus on secondary technology instead of large-scale power production, Invesco offers a "clean-tech" ETF designed to target companies that derive the majority of their revenue from products or services that are environmentally conscious. Among its 50 or so holdings are Luxembourg-based Eurofins Scientific (ERFSF) that designs environmental and "agriscience" testing products to help measure health and environmental impact, or biologics player Novozymes (NVZMY) that is trying to replace plastics and harsh chemicals with microrganisms and natural enzymes in everyday products. These are great examples of companies that may not be as prominent as a big solar name but ones that are certainly helping to fight climate change in important ways.
SPDR MSCI ACWI Low Carbon Target ETF (LOWC)
On the other side of these firms focused on green energy or natural products are the end users. And while consumer behavior matters, the fate of the planet is perhaps more reliant on the actions and business models of major corporations than individual household habits. The LOWC ETF is designed to focus on the corporations that are the most environmentally conscious. Unsurprisingly you'll find a lack of big oil companies and a focus on tech stocks like Apple (AAPL) and Google parent Alphabet (GOOG, GOOGL) that take great pains to design green office parks and embark on environmental initiatives.
Invesco Water Resources ETF (PHO)
One of the harsh realities of global warming is the increase in water demand caused by rising temperatures. This is particularly true in the American west, where states like California and Arizona have seen persistent droughts and related wildfires. The Invesco Water Resources ETF is a way to profit from this trend, however, through roughly 35 water-related holdings that include publicly traded water utilities like Aqua America (WTR) as well as pump, flow control and service providers such as industrial giant Danaher Corp. (DHR).
Great ETFs to invest in climate change:
-- Invesco WilderHill Clean Energy ETF (PBW)
-- iShares Global Clean Energy ETF (ICLN)
-- Invesco Solar ETF (TAN)
-- First Trust ISE Global Wind Energy Index Fund (FAN)
-- Invesco Cleantech ETF (PZD)
-- SPDR MSCI ACWI Low Carbon Target ETF (LOWC)
-- Invesco Water Resources ETF (PHO)
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