3 Reasons To Turn Your Portfolio Green And 3 ETF's To Help You Do It

Matt Thalman - INO.com Contributor - ETFs

While the most basic reasons to why we invest are simply; to make money, most investors have secondary reasons on why they invest in one company or another such as they believe in the product, they like what management stands for or in some cases the investor feels a moral or social responsibility to support a particular company or even industry. If you are one of the latter types, than I am sure you already understand the importance of investing in green energy stocks. If you are not, let me try to convince you with 3 reasons why you should be investing in green energy, before I tell you 3 ETF's that you can buy today that will turn your portfolio green with one single buy.

3 Reasons you should turn your portfolio Green

Reason number is that green energy is the only true sustainable form of energy over the long run. Not only that, but over the long-term, green energy is the only form of energy that can be truly unlimited. With any carbon form of energy there is a limited supply. There is only so much oil, natural gas or coal sitting in the ground waiting to be pulled out and used. While with solar energy, wind power or hydro-electric power, the supply is essentially never ending, (as long as the sun, wind and rivers are still flowing and if any of those stop, we all have much bigger problems than a lack of energy).

Reason number two is that because the inputs, (sun, wind, and water) are unlimited, the long-term costs of energy production through green means can be better predicted and more stable. As we are currently witnessing with oil and gas prices, the cost to consumers of these forms of energy can massively fluctuate based on a number of reasons in the short term, but over the long-run, the supply will inevitably decline, pushing the price higher. With green energy, once the solar panels, windmills or water-turbines are purchased and in place, its takes very little additional capital to keep these power producers running, since the inputs are free.

And the third reason is that green energy is simply a more environmentally responsible approach. While for some business's it is just all about making the most amount of money that they can, by investing in green energy you find an industry that is not only shows the ability to become profitable but also fulfills a secondary commitment of being safe for the environment. Burning oil, gas and coal to produce energy hurts the environment through the release of greenhouse gases and carbon emissions. But using the sun, wind or water to make electricity doesn’t produce any unwanted negative environmental damage.

3 Green ETF's to consider

Despite lagging the major indexes over the past five and ten year periods, Guggenheim Solar ETF (TAN) is up 42% year-to-date compared to the S&P 500 only rising 3% year-to-date. Even during the past 12 or 24 months TAN has beat the market, gaining 28% and 104% respectively compared to just 12.5% and 27%. The ETF follows its name and invest in solar related stocks. TAN's top five holdings are Hanergy Thin Film, SunEdison, First Solar, GCL-Poly Energy, and SolarCity and the ETF's top ten holdings make up 60% of the ETF while the other roughly 20 stocks comprise the rest. Currently TAN has about $440 million in assets, making it one of the largest green ETF's buy asset value. With the price of solar cells dramatically falling over the past five years and signs that the trend will continue, more consumers are finding solar power to be more affordable and a better long-term energy option. This trend has already helped TAN's performance and should continue to do so moving forward.

Next we have First Trust NASDAQ Clean Edge Green Energy ETF (QCLN). This ETF is a passively managed ETF that tracks the NASDAQ Clean Edge Green Energy Index. The ETF has 90% of its assets in US based companies and 10% in international stocks, which is split between Asia, Europe and Canada. Furthermore the market capitalization of its holdings is heavy in the mid-cap range with 54% of assets, while large cap stocks make up 9%, small cap making up 26% and just 12% in the micro-cap space. Year-to-date QCLN is up 14%, while over the past one, two, five, and ten years it has risen 10%, 41%, 40% and lost 3%. QCLN will give green investors a more diverse holding than TAN but could offer less upside since the ETF owns not only solar stocks, but a broad range of what is considered green stocks.

Lastly, iShares Global Clean Energy (ICLN) would make a great addition to any portfolio. Year-to-date the ETF is up 33% while over the past year it's up 22%. ICLN is more diversified than TAN, but isn't restricted as much as QCLN when it comes to what it can purchase. ICLN does have a big concentration of its assets in Chinese companies, 44%, which can be a concern to some investors. But, if you have a long-time investing horizon, than due to China's massive population and rising middle class, there is really no better country to be investing in when it comes to energy. More middle class citizens means more consumable goods, of which will mostly need energy in one form or another. This ETF will certainly have some ups and downs in the coming years, but over the long run if the fund continues to concentrate in China, it will be a winner.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held a long position in SolarCity at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

2 thoughts on “3 Reasons To Turn Your Portfolio Green And 3 ETF's To Help You Do It

Comments are closed.