Is this the best UK renewable energy ETF?

The iShares Global Clean Energy UCITS is the most popular renewable energy ETF in the UK. But is it the best? Edward Sheldon takes a look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Windmills for electric power production.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The most popular renewable energy exchange-traded fund (ETF) in the UK is the iShares Global Clean Energy UCITS ETF (LSE: INRG). This fund – which investors have piled into in recent years – currently has net assets of around $6.3bn.

But is INRG actually the best UK clean energy ETF to invest in? I’m not so sure. If I was looking to invest in renewable energy stocks through an ETF today, I think there could be better options for my portfolio.

The best UK renewable energy ETF?

One that looks superior to me is Lyxor New Energy UCITS ETF (LSE: NRJL). This is a smaller, more under-the-radar product with net assets of around €1.4bn.

This ETF is different to iShares Global Clean Energy in that it tracks the World Alternative Energy index. This is an index composed of the world’s 40 largest companies operating in the renewable energy, distributed energy, or energy efficiency sectors, that derive at least 40% of their revenues from alternative energy activities.

By contrast, the iShares Global Clean Energy tracks the S&P Global Clean Energy index, which is an index of around 100 clean energy-related companies in developed and emerging markets.

Better long-term performance

While the fact that these two track different indexes may not seem like a big deal, it has actually made a massive difference to performance, both in the short term and in the long term.

For example, if we look at performance this year, INRG has delivered a share price return of -13%. Meanwhile, NRJL has delivered a return of 5% (to 31 October).

Meanwhile, if we look at the 10-year returns to 31 October, INRG returned around 215% while the Lyxor fund (I’m looking at the EUR version here because it has a longer track record) returned around 295%. That’s a significant difference. 

Now these performance figures don’t tell the full story. That’s because INRG had a period of strong outperformance last year. This is illustrated by the fact that for the three years to 31 October, INRG returned around 220% while the Lyxor ETF returned around 140%.

However, I like the consistency of NRJL’s returns. I’d rather not invest in an ETF that is prone to huge price swings.

Lyxor New Energy risks

Of course, the Lyxor New Energy UCITS ETF isn’t perfect. Because it tracks an index that only has 40 renewable energy stocks, as opposed to around 100 for INRG, stock-specific risk is higher. If a handful of companies in the World Alternative Energy index blow up, this ETF could underperform. It’s worth noting that the top holding at 31 October, Schneider Electric had a 15% weighting in the index. That adds risk.

Another issue to be aware of is that the GBP version of this ETF isn’t available on all platforms. It is available on AJ Bell Youinvest while Hargreaves Lansdown only appears to have the EUR version.

Overall though, I see it as a good ETF for clean energy stocks. If I was looking to invest in renewable energy stocks via an ETF (I’m not, because I prefer to invest in individual stocks), I’d certainly consider NRJL.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »