NLR, ICLN, and CNRG are the best alternative energy ETFs for Q4 2022.
Alternative energy companies, which sell or use everything from solar energy to hydrogen and electric batteries, aim to make a profit by transforming the way societies power themselves. This is happening amid rising global concern about climate change, and also amid long-term forecasts of dwindling fossil fuel supplies.
Alternative energy exchange-traded funds (ETFs) track individual companies like oxide fuel cell maker Bloom Energy Corp. (BE) and hydrogen power firm Plug Power, Inc. (PLUG), as well as indexes that track several alternative energy companies. Many of the businesses in this industry are largely untested and inherently risky additions to a portfolio on their own, but an ETF can offer potentially lower-risk access to the sector.
There are 12 ETFs focused on alternative energy that trade in the U.S., excluding leveraged and inverse funds as well as those with under $50 million in assets under management (AUM). Over the past year, the alternative energy industry, as represented by the benchmark MSCI Global Alternative Energy Index, has outperformed the broader market. The index has 1-year trailing total returns of -2.8% as compared to -5.2% for the S&P 500 as of Aug. 6, 2022.
The best alternative energy ETF for Q4 2022 is the VanEck Uranium+Nuclear Energy ETF (NLR).
Below, we examine the top 3 alternative energy ETFs as measured by 1-year trailing total returns. All figures below are also as of Aug. 5, 2022.
VanEck Uranium+Nuclear Energy ETF (NLR)
NLR is a multi-cap fund that focuses on value stocks. The fund tracks the MVIS Global Uranium & Nuclear Energy Index. The index is comprised of companies involved in uranium mining and related projects when those projects are expected to generate at least half of the company’s revenue, as well as companies constructing and maintaining nuclear power facilities, reactors, and equipment, or those producing electricity from nuclear sources. More than half of the companies in the fund are based in the U.S., with companies from Japan, Canada, and France receiving the next-largest allocations.
The top holdings of NLR include Dominion Energy Inc. (D), a natural gas, electricity, and coal power company serving customers across the U.S.; Duke Energy Corp. (DUK), a holding company that provides electric power and natural gas services; and Constellation Energy Corp. (CEG), an electric power provider through nuclear, solar, wind, hydro, and other sources.
iShares Global Clean Energy ETF (ICLN)
ICLN is a multi-cap fund that targets a blend of value and growth stocks. It tracks the S&P Global Clean Energy Index, which focuses on global companies that produce energy from solar, wind, and other renewable sources. ICLN offers broad-based exposure to a variety of sub-industries within alternative energy. Semiconductor equipment stocks make up just under 24% of the fund’s portfolio, followed by renewable electricity and electric utilities stocks.
The top holdings of ICLN include Enphase Energy Inc. (ENPH), a maker of solar micro-inverters, batteries, and related equipment; SolarEdge Technologies Inc. (SEDG), an Israel-based manufacturer of solar inverters and similar products; and Vestas Wind Systems A/S (VWS:CSE), a Danish maker, installer, and servicer of wind turbines.
SPDR S&P Kensho Clean Power ETF (CNRG)
CNRG is a multi-cap, blended fund focusing on alternative energy stocks in developed markets. It tracks the S&P Kensho Clean Power Index, an index of companies driving innovation in the areas of solar, wind, geothermal, and hydroelectric power. Electrical components and equipment stocks make up the largest portion of the portfolio at over 19%. Electric utilities, semiconductors, and renewable electricity stocks comprise the next-largest allocations.
The top holdings of CNRG include Enphase Energy; First Solar Inc. (FSLR), a maker of solar panels and related equipment; and Plug Power Inc. (PLUG), a company developing hydrogen fuel cell systems.