Better Clean Energy ETF: Broad Exposure Through iShares' ICLN vs. Invesco's Solar-Focused TAN

While the Invesco Solar ETF (NYSEMKT:TAN) offers concentrated exposure to the specific dynamics of the solar industry, the iShares Global Clean Energy ETF (NASDAQ:ICLN) provides broader diversification and a lower expense ratio.

Investors looking to capitalize on the global transition toward renewable energy often choose between niche and broad strategies. This comparison examines how a specialist fund targeting solar power stacks up against a diversified peer covering wind, solar, and other sustainable power technologies to determine which better suits an investor's risk profile.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The iShares fund is the more cost-efficient choice for investors, carrying an expense ratio that is 0.32 percentage points lower than its solar-focused peer. For investors in the volatile renewable energy space, lower management fees can be critical in helping to preserve capital over a multi-year horizon.

Performance & risk comparison

What's inside

The iShares Global Clean Energy ETF provides exposure to 105 global companies involved in sustainable power solutions. Its portfolio leans heavily into utilities at 41%, followed by technology at 32% and industrials at 25%. Its largest positions include Bloom Energy at 8.94% and First Solar at 7.65%. The fund applies an ESG screen to its selection process and was launched in 2008.

In contrast, the Invesco Solar ETF is a pure-play vehicle that concentrates solely on the solar industry. It tracks the MAC Global Solar Energy Index with a much narrower portfolio of 36 holdings, dominated by energy at 55% and utilities at 31%. Its largest positions include First Solar at 10.22%, Nextracker at 8.81%, and Enlight Renewable Energy at 6.87%. The fund was launched in 2008.

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

Which looks like the better buy

The iShares Global Clean Energy ETF (ICLN) and Invesco Solar ETF (TAN) offer different approaches to investing in the renewable energy sector. Now is a good time to do so. The rise of artificial intelligence has led to unprecedented demand for electricity, and the tech companies building AI systems seek renewables. Whether ICLN or TAN is the better choice depends on the factors that matter most to you.

TAN is the better ETF if you want to target the solar energy sector specifically. The underlying index it tracks, the MAC Global Solar Energy Index, underwent changes in June, so the fund's performance going forward will be affected accordingly. TAN doesn't offer a dividend, and it is market cap-weighted, meaning the ETF's return depends heavily on its top holdings.

ICLN delivers a more balanced approach, with holdings across different types of renewable energy, and as a result, offers a more diversified portfolio of over 100 equities to TAN's smaller 36 stocks. It's the better ETF if you want this higher diversification, a lower expense ratio, and a dividend. It also sports a higher AUM, giving it greater liquidity. For these reasons, I would pick ICLN over TAN.

Robert Izquierdo has positions in First Solar. The Motley Fool has positions in and recommends Bloom Energy, First Solar, and Nextpower. The Motley Fool has a disclosure policy.