XLE vs ICLN ETF Showdown Traditional Energy Meets Clean Energy. Which ETF Is the Better Buy?

Choosing between State Street Energy Select Sector SPDR ETF (NYSEMKT:XLE) and iShares Global Clean Energy ETF (NASDAQ:ICLN) comes down to a preference for low-cost, domestic fossil-fuel giants versus a global, ESG-screened portfolio of renewable energy developers.

XLE provides a liquid, concentrated vehicle for betting on the traditional energy giants within the S&P 500. Conversely, ICLN offers diversified international exposure to the clean energy transition. This match-up highlights the differences in cost, volatility, and sector focus between traditional and sustainable energy strategies.

(cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield based on the closing prices of July 9.

Cost-conscious investors may find the State Street fund more affordable, as its 0.08% expense ratio is significantly lower than ICLN’s 0.39%. Furthermore, XLE currently offers a higher payout with its 2.80% trailing yield.

Performance & risk comparison

What's inside

The State Street Energy Select Sector SPDR ETF provides 100% exposure to the energy sector, holding 22 large-cap companies from the S&P 500. Its largest positions include Exxonmobil Holdings Corp (NYSE:XOM) at 20.3%, Chevron Corp (NYSE:CVX) at 14.4%, and Conocophillips (NYSE:COP) at 5.9%. It was launched in 1998. State Street Energy Select Sector SPDR ETF has paid $1.52 per share over the trailing 12 months, which on its recent ~$54.82 share price works out to a 2.80% yield.

The iShares Global Clean Energy ETF tracks an index of international companies focused on renewable energy, utilizing an ESG screen to select its 100 holdings across technology (33.8%), utilities (33.4%), and industrials (31.3%). Top holdings include Bloom Energy Corp (NYSE:BE) at 14.8%, First Solar Inc (NASDAQ:FSLR) at 8.4%, and Nextpower Inc (NASDAQ:NXT) at 7.2%. It was launched in 2008. iShares Global Clean Energy ETF has paid $0.18 per share over the trailing 12 months, which on its recent ~$19.33 share price works out to a 0.90% yield.

Which is the better fund?

Do you want to invest in fossil fuel businesses or renewable energy innovators? If you have a strong feeling either way, each is a good fund for your objectives. But they have significant differences for those seeking the best energy ETF to invest in.

The fossil fuel fund, XLE, is incredibly concentrated, with its top 10 holdings comprising 72% of assets. It’s an all U.S. stock fund that is just about equally weighted in large-caps and mid-caps, with a smidgen of small-caps. In addition to its 1-year return of 29.3%, XLE has annualized returns of 13.3%, 18.8%, and 8.9% over the 3-year, 5-year, and 10-year time frames.

By comparison, the renewable energy fund is more diverse, with 100 holdings and 54% oif its assets in its top 10 holdings. ICLN is 34% in large-caps, 45% mid-caps, and 21% small-caps. The portfolio’s holdings are 42% growth stocks, while 47% of the portfolio’s stocks are U.S. businesses.

Performance is where ICLN stands out: the fund is beating XLE handily in the past three months, year to date, and 1-year periods. Long-term, ICLN has returned 5.0%,-1.2%, and 10.7% in the 3-, 5-, and 10-year look-backs, reflecting the volatility that comes with renewable stocks due to tax policy and interest rate sensitivity. Still, its better long-term performance and the growth outlook for clean energy makes ICLN the better buy.

For more guidance on ETF investing, check out the full guide at this link.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bloom Energy, Chevron, First Solar, and Nextpower. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.