With concerns regarding climate change now becoming major, governments worldwide are accelerating their countries' shifts to carbon-neutral energy sources. The demand for clean energy in the U.S. is proving to be resilient, even absent direct incentives for green infrastructure development in the economic recovery measures passed in response to COVID-19.
The industry’s growth may further accelerate this year with the United States’ recent re-entry into the landmark Paris Agreement on climate change. Furthermore, the Biden-led administration has set ambitious targets to achieve net-zero carbon emissions by 2050 and plans to invest $400 billion over 10 years as part of a broad mobilization of public investment in clean energy and innovation.
However, with many new companies seeking to capitalize on the impending revolution, the industry has arguably become over-crowded. So, it might be risky to ride the clean energy wave by investing directly in stocks. Hence, investing in ETFs such as Invesco WilderHill Clean Energy ETF (PBW) and Invesco Global Clean Energy ETF (PBD) could be a better option because they offer diversified exposure, which reduces risk significantly.
Invesco WilderHill Clean Energy ETF (PBW)
PBW, managed by Invesco Capital Management LLC, focuses on the stocks of companies operating across energy, utilities, alternative energy resources, independent power and renewable electricity producers, and renewable electricity sectors. The fund is diversified across market capitalization ranges and seeks to invest in the stocks of companies that focus on greener and renewable sources of energy and promote environmental responsibility.
The fund tracks the performance of the WilderHill Clean Energy Index using a full replication technique. The top three holdings of the ETF are Daqo New Energy Corp ADR (DQ), ReneSola Ltd. ADR (SOL) and Lithium Americas Corp. (LAC) with weightings of 3.69%, 3.19%, and 2.88%, respectively.
PBW has an $2.88 billion in AUM and an expense ratio of 0.70%, compared to the category average 0.32%. The fund pays $0.45 in dividends annually, yielding 0.40% at its current price. PBW has gained 3.2% year-to-date and 91.2% over the past six months.
Invesco Global Clean Energy ETF (PBD)
PBD invests in companies that operate across the energy-efficiency sector and are focused on hydroelectricity, solar electricity, wind alternative energy resources, biofuels, and renewable electricity technologies. One of the fund’s appealing features is that it maintains a much smaller concentration of assets among its top holdings, thereby minimizing the fund's dependence on a few select stocks.
The fund tracks the performance of the WilderHill New Energy Global Innovation Index using a full replication technique. It invests at least 90% of its assets in the securities of the index. The ETF’s three holdings are FuelCell Energy, Inc. (FCEL), LAC and SOL with weights of 1.87%, 1.79%, and 1.72%, respectively.
PBD has an $415.55 million in AUM and an expense ratio of 0.75% versus the category average 0.61%. The fund pays $0.17 in dividends annually, yielding 0.48% at its current price. The ETF has an MSCI ESG Fund Rating of A. The fund has gained 63.7% over the past six months and 114.3% over the past year.
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PBW shares were trading at $108.29 per share on Friday afternoon, up $1.62 (+1.52%). Year-to-date, PBW has gained 4.74%, versus a 3.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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