For most people, helping out the environment doesn’t mean completely overhauling the way we live. It’s simply choosing more sustainable ways to do what we already do. Like buying reusable grocery bags or purchasing clothes from environmentally conscious companies. Green investing is a powerful way for you to drive change towards a more sustainable society.
Under the umbrella of socially responsible investing, green investing is the strategy of investing in environmentally conscious companies that make an effort to conserve natural resources, either directly or in their business practices. While this type of investment offers the benefit of helping out a cause you believe in, it’s still important to consider all the risks and rewards associated with investing your money. Our ‘Demand Green’ portfolio has been developed for this very purpose.
Whether you are interested in socially responsible investing or you simply want to buy into a growth industry, Clean Energy ETFs are effective components of a green and globally diversified portfolio.
What Are Clean Energy ETFs?
Clean energy ETFs are exchange-traded funds that invest primarily in stocks of companies involved in alternative energy sources, such as solar, wind, and water. These funds typically track the performance of an underlying index comprised of stocks of companies involved in clean and renewable energy sources.
Companies and energy regulators use clean energy to power electric cars, increase energy storage and provide electricity for state and local energy grids.
The Outlook for Clean Energy
Now may be one of the best times in history for you to invest in clean energy ETFs. According to the U.S. Department of Energy, the clean energy industry generates hundreds of billions in economic activity and is forecast for rapid growth in the coming year.
With a combination of increasing interest in alternative energy resources, rising oil prices,and more states adopting clean-energy benchmarks, more and more investors are looking to benefit from this sector’s rising tide.
As for 2021, clean energy ETFs appear to have solid momentum and may have the wind at their collective back. Some clean energy ETFs put in triple digit gains in 2020, with some surging over 25% in January of this year alone.
However, you’d be wise to keep a long-term outlook, because investments that focus on niche areas of the market often see significant short-term fluctuations in price.
Clean Energy ETFs to Consider
Although clean energy ETFs share similar objectives and invest in many of the same sources of alternative energy, they do not all share the same holdings. Each fund differs some in how it invests.
So, we generated criteria we use to find the best clean energy ETFs that complement the ‘Demand Green’s’ other globally diversified ESG holdings. Generally, it’s wise to buy ETFs that have a multi-year track record and high relative assets under management (AUM)—more than $200 million is common among the top clean energy funds.
Our clean energy ETFs have high AUMs relative to competing funds, as well as a track record of at least 13 years:
- Invesco WilderHill Clean Energy ETF (PBW): PBW tracks the WilderHill Clean Energy Index, which includes 39 stocks of companies involved in clean energy and conservation. Top holdings include FUV, DQ & WKH with a current one-year return of 238 percent.
- First Trust NASDAQ Clean Edge Green Energy Fund (QCLN): This fund tracks the NASDAQ Clean Edge Green Energy Index, which includes a mix of U.S. and Canadian companies involved in the clean energy sector. Top holdings include TSLA, PLUG & ENPH with a current one-year return of 194 percent.
The Bottom Line
The clean energy sector appears to have a bright future, but the industry is still relatively new and untested. For this reason, market risk and price volatility may be higher than broader market indices. At Demand Wealth, we incorporate Clean Energy ETFs as a part of our overall Green strategy that is utilized in concert with a more comprehensive investment plan designed to achieve your financial goals.
If you are searching for a way to invest in Green companies that support the world you want to see, while protecting your money from companies that don’t. Contact us to learn more and ask about our full range of investment services today!
This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.