ETFs for renewable energy – Everything you need to know about this lucrative industry of the future

Energy generation from solar, wind and other sources will experience an enormous boom over the next few years, as current methods are no longer sustainable. The perfect time for investors to invest in ETFs for renewable energy!

After all, the expansion of such non-fossil energies is by no means complete! The high demand for ETFs for renewable energies shows that many investors want to participate in this process.

But which product offers the best return? What should you look out for before buying? And what are the chances of high long-term returns? You can find the answers here!

Future sector: ETFs for renewable energy

The general consensus today is that man-made CO₂ emissions should be reduced or, ideally, stopped completely. This is because the resulting global warming is already actively depriving us of the basis of life!

Years of drought, extreme weather phenomena and unbearable heat in large parts of the world have been identified as direct consequences. It is therefore no wonder that the international community is united in wanting to stop this development.

Alongside industry and transport, energy generation from fossil fuels such as coal, oil and gas is one of the biggest CO₂ producers. The disadvantages of this technology are numerous and include far more than just the severe environmental damage!

Russia’s attack on Ukraine showed that dependence on suppliers is also a huge problem. In addition, fossil fuels are comparatively expensive and lead to high electricity prices.

Due to the enormous dangers of nuclear energy, renewable energies remain the only alternative. Their use is being promoted by numerous countries and strong demand is generating considerable growth and high sales for the companies involved.

Investors are already benefiting from this change by investing in renewable energies through shares, funds or ETFs. Strong returns can also be expected here in the future, as the expansion of non-fossil energies is by no means complete!

This is how far the expansion has progressed

Renewable energies already account for almost half of the German energy mix. While nations such as Norway, Iceland and Paraguay already obtain almost 100 per cent of their energy from renewable sources, other countries are still at the very beginning of this change.

In the summer months with the highest levels of solar radiation, Germany was at times able to cover up to 80 % of its electricity requirements with photovoltaics. A milestone that should not obscure the importance of further expansion.

The supply of photovoltaics to private households in particular is lagging behind expectations. Supply bottlenecks mean that many householders still have to wait months for their solar installation.

There is also a huge global demand for the corresponding technologies. Companies active in the field of renewable energies are often experiencing huge growth and enormous demand. No wonder many investors are keen to get in on the action!

Different technologies – different ETFs for renewable energies

Sustainable energy production is divided into various sectors and other sub-sectors. Today, photovoltaics, wind energy, hydropower, geothermal energy and bioenergy are the main ones in use.

However, different technologies, concepts and a high degree of innovation ensure constant innovation. Different areas of application and new findings also keep the industry on its toes.

Renewable energies are therefore an umbrella term for dozens of often highly complex sub-sectors. In turn, countless companies are active in these areas, which often grow rapidly and generate huge returns, but can also disappear again quickly.

Manually selecting shares to benefit from this trend is extremely time-consuming and risky for investors. ETFs for renewable energies can help here, as they automatically select stocks based on defined criteria.

These exchange-traded funds replicate indices such as the DAX, Euro Stoxx or S&P 500. With an investment, we receive shares in the companies included and thus make a broadly diversified investment. This significantly reduces the risk in the event of a slump in the price of an individual security!

In addition, an ETF for renewable energies offers comparatively low costs – significantly less than an actively managed fund, for example! This allows us to enter the sector with little effort (in terms of time and money).

ETFs for renewable energies are based on indices that contain green energy companies. The numerous funds also include securities that offer a higher degree of specialisation and focus exclusively on a single technology, country or region, for example.

This means that investors can easily replicate their personal strategy with ETFs for renewable energies. This offer is also gratefully accepted: These sector ETFs can already be found in a large number of portfolios today!

future prospects of the industry

The positive development of renewable energies can be regarded as assured. Both the demand for the technologies and our society’s hunger for energy will continue to increase in the coming years.

The political environment in most nations is already clearly focussed on sustainable energy sources. Bans on combustion engines or subsidy programmes for solar systems, wind power and the like can be found in many countries today.

However, it is much less clear which companies will win the race. The entire industry is very fast-moving. Companies celebrate rapid success with innovations, but often disappear surprisingly quickly.

Established companies from technology or industry regularly enter this market, but also often fail due to the fast pace of the sector. This poses a considerable challenge for investors, as we can easily back the wrong horse here.

At the same time, screening the numerous small and medium-sized companies is very time-consuming. Funds or ETFs for renewable energies therefore appear to be by far the most sensible method of profiting from this trend.

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1,300 ETFs suitable for savings plans

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Moral investment

As an investor, our investment always has a moral component: depending on which company, person or other organisation we invest our money in, we are supporting an industry or project.

Every euro we earn through interest, capital gains or other investment income is taken away from someone else. Such profits only arise because workers never receive a wage that corresponds to their actual labour and more and more resources are being extracted below value. However, we can at least partially compensate for or exacerbate this situation, depending on the areas in which we invest.

If we buy shares in an armaments company or an oil giant, we provide the companies with additional capital, increase demand and thus ultimately legitimise an entire industry.

If we decide instead to invest in renewable energies, housing construction, agriculture, etc., we can contribute to positive change with our capital.

A large number of investors today are aware of this effect and are specifically opting for helpful, morally sensible financial products. ETFs for renewable energies are currently extremely popular as they combine these intentions with lucrative profit prospects.

The most important ETFs for renewable energies

If you want to invest in renewable energies using ETFs, you have a wide range of different products to choose from. Some of them are real heavyweights with a volume of several billion euros – a sign of the great popularity of the sector!

I have put together some of the most important and interesting ETFs for renewable energies for you below:

1. iShares Global Clean Energy UCITS ETF USD (Dist)

With a volume of almost EUR 7 billion, the Global Clean Energy UCITS ETF from iShares is a real giant! It contains companies from the renewable energy sector, regardless of their location. However, only the largest and most liquid companies are included.

Its performance has been impressive, especially in recent years: Investors who joined the fund five years ago have roughly doubled their capital to date! The dividends of the companies included are even paid out to the investors.

Costs of 0.65 per cent are on the high side for an ETF, but demand continues unabated. Although other ETFs are also based on the same index (the S&P Global Clean Energy), this product from iShares is the most popular.

2. HANetf Solar Energy UCITS ETF

The HANetf Solar Energy UCITS is even more specialised: it focuses on companies from the solar industry. Due to the increasing drought almost everywhere, solar cells are particularly lucrative, as the sun can usually shine undisturbed by clouds and weather.

This still young ETF for renewable energies (launch: June 2021) has already generated an attractive return of almost 25 %! Thanks to the opportunities in the sector, the signs continue to point to growth.

However, at just 11 million euros, it is still quite small and therefore at risk of closure. This is because ETFs with low volumes are not worthwhile for the operator in the long term.

Also worth mentioning is the high proportion of Chinese companies: they make up around a quarter of the ETF, as do companies from the United States! While some investors may welcome this move as it contributes to diversification, it could scare off other investors.

Nevertheless, the Solar Energy UCITS from HANetf is an interesting option for anyone who wants to benefit from solar power. For a slightly higher risk, you get a quick and uncomplicated start here.

3. Lyxor MSCI New Energy ESG Filtered (DR) UCITS ETF

Investors who wish to invest in renewable energies and at the same time attach importance to social aspects and sustainable corporate governance are well advised to invest in the MSCI New Energy ESG Filtered (DR) UCITS ETF from Lyxor.

With a volume of EUR 1.6 billion, this is also one of the larger ETFs and therefore has a very low closure risk. 0.6 per cent costs per year are easily offset by a very good performance in recent years.

As is usual with ETFs for renewable energies, we also see a significant slump in the first half of 2022, but if we look at a period of 5 years, we see growth of more than 50 per cent!

The United States tops the list of companies in this ETF with 30%. China is in second place, lagging behind with 13%. So anyone who is already heavily invested in the US market could encounter a clumping risk with this offering that should not be underestimated.

4. L&G Clean Energy UCITS ETF

At first glance, the L&G Clean Energy UCITS ETF looks like another generic ETF for renewable energies. In fact, investments are generally made here in companies from the sector that are based in different nations.

And that is also the advantage of the L&G Clean Energy: it does not have a particular focus on a single nation, as we often find with other products! At 16 per cent, the USA is the most strongly represented country. However, this is a significantly lower figure compared to the 60 per cent or more allocated to a single country in other ETFs.

This may also be the reason for the very good performance of this ETF: although it is comparatively young at 18 months, it has already achieved a return of more than 30 per cent!

Its costs of 0.49 % per year are also slightly lower than those of competing products. The volume currently only amounts to 220 million euros, which does not necessarily constitute a warning signal given its young age.

5. First Trust Nasdaq Clean Edge Green Energy UCITS ETF

Who needs diversification? If you don’t mind the risk of being heavily concentrated in a single nation, the First Trust Nasdaq Clean Edge Green Energy UCITS could be perfect for you!

With a share of 65%, this ETF for renewable energies consists predominantly of companies based in the United States. An investment therefore means that we link our capital very strongly to the development of US companies!

In the past, this has not been a bad decision. The performance of the Clean Edge Green Energy ETF over the last 12 months was a very attractive 21 per cent. Nevertheless, the risk of such a strong lumpiness cannot be dismissed out of hand.

If you are looking for an ETF for renewable energies and want to invest more heavily in the US market anyway, this offer may be ideal for you. However, all other investors should be aware of the risk. This could also explain the low volume of only 48 million euros.

98/100

Points

1,300 ETFs suitable for savings plans

supervised by German regulator

2% interest for new customers

REDEEM BONUS*

Conclusion: Do good and earn

ETFs for renewable energies are currently extremely popular with investors as they combine high returns with a moral component. By investing, we are providing capital to companies that play a key role in combating the climate catastrophe!

As there is no way around these alternative energy sources, the prospects for success in the industry as a whole are very high. Nevertheless, it is extremely difficult to identify the best companies – not every company will make it and failures and failures are not uncommon.

ETFs for renewable energies avoid this difficulty by investing in hundreds of companies at the same time. They therefore form a very good basis for a portfolio that focuses on the energy supply of the future.

Subsequently, certain areas can be strengthened through individual shares or more specialised ETFs. For example, if you are particularly convinced of the success of the solar industry, you can add the HANetf Solar Energy to increase your investment here. If you want to know how financial sector ETFs or industry ETFs perform, read this article.

Note, however, that many ETFs for renewable energies come with a strong lumpiness! The United States and China are often disproportionately represented. When buying exchange-traded funds, you should therefore always ensure good diversification in order to minimise your personal risk.