Climate change is a matter of concern all over the world now. Global climate is projected to continue to change over this century and beyond, temperature will continue to rise, and more droughts are expected in the future. According to the Third and Fourth National Climate Assessment Reports released by the U.S. Global Change Research Program, increased heat waves in the Northeast, Southwest, and Midwest regions of the United States are expected. The Northwest and Southeast regions are expected to face decreased water supplies.

The growing concern about climate change has led world leaders to take immediate actions. In the United States, taking on the “existential threat” of climate change is one of the “Day One” priorities for President-elect Joe Biden. He has also announced his commitment to achieve economy-wide net-zero emissions by 2050.

Given the risk involved in betting on individual stocks ahead of the expected market volatility with the second wave of COVID-19, cleantech ETFs could be the best options to capitalize on this trend. Several ETFs are focusing on solar energy stocks as the future looks bright for the solar industry.

By 2030, solar could become the most important source of energy for electricity production in a large part of the world. The iShares S&P Global Clean Energy Index Fund (ICLN), Invesco Solar ETF (TAN), and Invesco Cleantech ETF (PZD) could be solid bets in the cleantech space now.

iShares S&P Global Clean Energy Index Fund (ICLN)

ICLN invests in the global clean energy index, including both domestic and international stocks. Not limited to solar energy, ICLN also includes companies developing other alternative energy sources like wind power. While it doesn’t include many companies, its major holdings include Enphase Energy, Inc. (ENPH), making up 4.98% of the fund, and First Solar, Inc. (FSLR) at 4.86%, and VERBUND AG (VER) at 4.81%. The fund has $2.2 billion in Assets under Management (AUM).

ICLN’s expense ratio is 0.46%, compared to the category average of 0.63%. It has returned 90.2% over the past six months, and 80.2% year-to-date. It pays an annual dividend of $0.14, which yields 0.63% on the prevailing price. ICLN’s four-year average dividend yield is 2.4%.

ICLN has gained more than 143% since hitting its 52-week low of $8.08 in March. The ETF is currently trading 8.4% below its 52-week high of $22.95.

How does ICLN stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

A for Peer Grade

B for Overall POWR Rating

It is also ranked #2 out of 36 ETFs in the Energy Equities ETFs group.

Invesco Solar ETF (TAN)

Aptly named TAN, the ETF is based on the MAC Global Solar Energy Index. It focuses solely on solar power energy. The fund invests a minimum of 90% of its total assets in the securities, American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) that comprise the Index. Having AUM of $1.9 billion, the fund includes some of the top solar energy companies. Among its top holdings, ENPH makes up 10.75% of the fund, followed by SolarEdge Technologies, Inc. (SEDG) at 9.04%. FSLR and JinkoSolar Holding Company Limited (JKS) at 7.28% and 5.79%, respectively.

TAN has an expense ratio of 0.71%, compared to a category average of 0.63%. It has returned 122% in the last six months, and 132.1% year-to-date. TAN pays an annual dividend of $0.09, which yields 0.12%. Its average four-year dividend yield stands at 1.8%.

TAN has gained 191.8% since hitting its 52-week low of $21.14 in March. The ETF is currently trading 13.1% below its 52-week high of $80.86, which it hit on November 9^th.

TAN’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and a “B” for Buy & Hold Grade and Peer Grade. Among the Energy Equities ETFs group, it’s ranked #3.

Invesco Cleantech ETF (PZD)

Even though PZD is based on the Cleantech Index, the ETF is tilted towards the industrials sector. A company is considered to be a cleantech company when it derives at least 50% of its revenues or operating profits from cleantech businesses. Having $349.1 million in AUM, the fund’s major holdings include ENPH at 4.48%, followed by SEDG at 3.46% and Vestas Wind Systems AS with 3.24%.

PZD’s expense ratio is 0.68%, compared to the category average of 0.63%. It has returned 46.4% over the past six months, and 28% year-to-date. It pays an annual dividend of $0.22, which yields 0.34% on the prevailing price. Its average four-year dividend yield stands at 0.7%.

PZD has gained nearly 74.1% since hitting its 52-week low of $32.41 in March. The ETF is currently trading 4.3% below its 52-week high of $66.73.

It’s no surprise that PZD is rated a “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade. In the Energy Equities ETFs group, it is ranked #6.

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ICLN shares were trading at $21.78 per share on Wednesday afternoon, up $0.61 (+2.88%). Year-to-date, ICLN has gained 86.18%, versus a 12.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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