A Tale of Two Energy ETFs: How EMLP and TAN Are Worlds Apart

First Trust North American Energy Infrastructure Fund (NYSEMKT:EMLP) provides diversified exposure to utilities and pipelines with relatively low volatility, whereas Invesco Solar ETF (NYSEMKT:TAN) offers a concentrated, more volatile bet on the global solar energy sector.

Sustainable energy investing often follows two distinct paths: narrow thematic focus or broad infrastructure stability. This comparison explores how a concentrated solar strategy contrasts with a diversified approach to energy assets, highlighting the differences in volatility and total return potential between these two popular investment vehicles.

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-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Cost-conscious investors will find the Invesco fund more affordable with its 0.7% expense ratio compared to the 0.95% charged by the First Trust fund. These fees reflect the differing management styles and indexing strategies used by each respective issuer.

Performance & risk comparison

What's inside

First Trust North American Energy Infrastructure Fund concentrates primarily on Utilities (49%) and Energy (47%), with a 4% allocation to Industrials. Its portfolio is non-diversified and contains 59 holdings filtered through an Environmental, Social, and Governance (ESG) screen. It focuses on the infrastructure required to transport and generate energy across North America, such as pipelines and renewable production. Its largest positions include Enterprise Products Partners (NYSE:EPD) at 8.56%, Energy Transfer at 7.33%, and MPLX (NYSE:MPLX) at 4.32%. This fund was launched in 2012.

Invesco Solar ETF offers a tighter thematic focus, with 56% of its portfolio in Energy and 32% in Utilities. It tracks the MAC Global Solar Energy Index and holds a more concentrated basket of 36 stocks. The fund mandates that at least 90% of its capital remains in solar industry equities, including ordinary shares and depositary receipts. Its largest positions include Nextpower (NASDAQ:NXT) at 10.85%, First Solar (NASDAQ:FSLR) at 9.38%, and Enlight Renewable Energy at 8.39%. This fund was launched in 2008.

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Which looks like the better buy

When comparing the First Trust North American Energy Infrastructure Fund (EMLP) and the Invesco Solar ETF (TAN), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. EMLP is an energy ETF focused on midstream energy stocks and utilities. It holds about 60 stocks. TAN, on the other hand, holds about 30 stocks. Its focus is on companies specializing in solar equipment, manufacturing, and generation.

Two other important factors are historical performance and income potential. Examining the two funds' historical performance reveals a massive gap. Over the last five years, EMLP has generated a total return of 111%, equating to a 16.1% CAGR. TAN, by contrast, has delivered a total return of -58%, with a -16% CAGR. As for income, TAN has not paid a dividend since 2024, while EMLP has a dividend yield of 2.8%.

One final factor to weigh is cost. In truth, both funds are relatively costly. EMLP has an annual expense ratio of 0.95%, while TAN's is 0.70%. For context, the average expense ratio for the ETF universe is around 0.45%.

In summary, EMLP and TAN are both energy ETFs; however, they differ in many key respects, with historical performance being the starkest contrast. Therefore, many investors facing a head-to-head choice between these two ETFs will favor EMLP given that it has simply performed far better than TAN over the last five years. EMLP also boasts a significant dividend, which will appeal to income-oriented investors.

Jake Lerch has positions in Enterprise Products Partners. The Motley Fool has positions in and recommends First Solar and Nextpower. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.