When it comes to green or renewable energy exchange traded funds, many investors prefer broad-based approaches or those funds providing exposure to multiple clean energy concepts.
That much is confirmed by the fact that 10 largest clean energy ETFs by assets can all be considered “broad.” Upon further examination, investors’ preference for this way of accessing renewable energy makes sense. After all, market participants are constantly hearing about the virtues of diversification and there’s something to be said for accessing industries such as hydrogen, solar and wind under the convenience of one umbrella.
On the other hand, there’s a strong case for industry-specific renewable energy ETFs. Tactical investors can opt to deploy these funds in lieu of or alongside the more diverse counterparts. Part of the case for considering industry-specific green energy ETFs revolves around the point that simply because these stocks, in a broad sense, are part of the same theme, they aren’t always highly correlated.
For example, over the past three years, diverse baskets of wind energy stocks are basically flat while solar equities are sharply higher. With those factors in mind, here are a few single industry renewable energy ETFs to consider.
First Trust Global Wind Energy ETF (FAN)
The First Trust Global Wind Energy ETF (FAN) was arguably ahead of its time. The fund, which tracks the ISE Clean Edge Global Wind Energy Index, debuted more than 15 years ago and remains one of kingpins of the wind energy ETF space, albeit a sparsely populated segment. FAN has nearly $234 million in assets under management, confirming there is appetite for a deep bench of wind energy equities in fund form.
Those are important factors to be sure, but FAN is underpinned by a credible investment thesis, including wind being the preferred renewable energy source for a variety of countries and states that don’t have the climate advantages of say California or Florida.
“The market outlook for the global wind industry looks even more positive. 557 GW of new capacity is expected to be added in the next five years under current policies,” according to the Global Wind Energy Council (GWEC). “That is more than 110 GW of new installations each year until 2026. However, this growth needs to quadruple by the end of the decade if the world is to stay on course for a 1.5C pathway and net-zero by 2050,” adds the GWEC.”
Global X Hydrogen ETF (HYDR)
The Global X Hydrogen ETF (HYDR), which follows the Solactive Global Hydrogen Index and is 25 months old, may not be getting the credit it deserves and that may be attributable to the fact hydrogen hasn’t yet captured hearts and minds on par with solar and wind. However, that arguably belies what’s a compelling long-term opportunity set in the hydrogen power sector.
What makes the hydrogen investment thesis interesting is that it’s arguably disruptive relative to other clean energy concepts and it has myriad industry-level applications. Plus, there’s a long runway for broader adoption.
“Low-carbon hydrogen, particularly green and blue hydrogen, can be used to decarbonize a range of hard-to-electrify activities, such as heating, refining, fertilizer production, and transport,” according to Global X research. “With such versatility, by the end of the decade low-carbon hydrogen could account for around 25% of total hydrogen production, a significant increase from a less than 1% share in recent years.”'
Invesco Solar ETF (TAN)
Like the aforementioned FAN, the Invesco Solar ETF (TAN) is one of the forefathers of the industry-specific ETF segment. TAN, which follows the MAC Global Solar Energy Index, debuted in April 2008. Over that time, TAN has experienced fits and starts and bouts with volatility, but it’s also one of the better-performing renewable energy ETFs over that period.
A primary catalyst behind the ETF’s success (it has $1.78 billion in assets under management) is solar’s status as one of the leading forms of renewable energy. It’s highly popular in states that can accommodate it, such as California. Likewise, large national economies, such as China, are rapid adopters of solar energy.
Past performance isn’t a guarantee of future returns, but as of early May, TAN was the best-performing non-leveraged ETF of any strip over the past five years.
https://www.nasdaq.com/articles/single-industry-green-energy-etfs-to-consider
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