ICLN vs QCLN Energy ETF Comparison
ICLN vs QCLN. Both are classified as alternative energy equities, but which of these energy ETFs is the best one to add to your portfolio? In this article, we will analyze a variety of different factors which may contribute to that decision.
But, before that is done, we need to first establish the key difference between the two in terms of goals.
ICLN vs QCLN: Green Energy vs Clean Energy
The iShares Global Clean Energy ETF (ICLN) and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) both aim to invest in possible energy sources for the future.
But the biggest difference between them is that the ICLN focuses on clean energy, while the QCLN focuses on green energy, as the names suggest. The difference between the two is quite big, despite them being categorized together most of the time.
Clean energy refers to energy sources which do not pollute the air. It does not have to be renewable. An example of clean energy in terms of electricity may be nuclear energy. This energy is not renewable, but if it is carried out properly, there are no particles released into the air.
Green energy, on the other hand, is renewable and focuses on the smallest environmental footprint possible. The most popular form of green energy in the United States at the moment is solar energy, with wind coming in at a close second.
The terms green energy, and clean energy may sometimes overlap, causing the confusion between the two, but this may not always be the case. With regards to the ICLN vs QCLN this difference causes incredible variation in the holdings of the two ETFs
ICLN vs QCLN
ICLN vs QCLN: Indexes
Neither ETF tracks an existing index on its own, but this is due to the restrictions placed on the ETFs by their primary goals. Instead, they form new indexes based on the green or clean energy holding of other, popular indexes or even markets.
The QCLN tracks the performance of green energy companies listed in the NASDAQ. They aim to mimic the performance of green energy stocks throughout the US market. This means that they do not invest in any non-US companies or holding. The largest holding in any single asset of the QLCN is in Tesla inc. (TSLA), at 8.37%.
The ICLN, on the other hand, invests in global companies. Because it is focused on clean energy, rather than green, fund managers are also able to invest in a variety of alternative to fossil fuels.
Both these differences have the potential of making it slightly more diverse than the QCLN, in theory. An important thing to note is that many of its holdings are in green energy regardless. The largest holding of the ICLN is in Enphase Energy Inc. (ENPH), at 8.04%.
ICLN vs QCLN: Risk
Risk can be measured in a variety of different ways. One factor to consider when considering risk is the diversity of the ETF. As discussed above, ICLN has more opportunity for diversity because it is willing to consider non-US countries, and the development of alternatives to fossil fuels, whereas the QCLN only considers US Green Energy for its holdings.
This can be seen in practice to some degree. The ICLN has approximately 98 different holdings, while the QCLN only has 65. However, despite having fewer holdings, restricted to the US, QCLN still seems to have a wider variety of holdings, including investments in Energy Storage and Conversion companies, as well as Electric Vehicles such as Tesla.
However, there are other factors that will also influence risk, such as the total numbers of shares in holdings, cost, etc.
ICLN vs QCLN: Performance
The easiest way to determine the future performance of a stock is to look at the historical performance. In the graph below, we can see the performance of the ICLN (Blue) and the QCLN (Orange), from 2013 to August 2022.
Over the past five years, the ICLN has grown by approximately 150.11%, while the QCLN has grown by 248.31%
It is also important to note that a large drop in both ETFs occurred in 2008, causing the all time growth of the ICLN to be -55.32%, yes that is correct negative 55.32%, and the all time growth of the QCLN to be 218.92%.
ICLN vs QCLN: Cost
In regards to the cost of ICLN vs QCLN, ICLN is much cheaper. ICLN has an expense ratio of 0.46% at this moment, whereas QCLN has an expense ratio of 0.60%.
Both assets, due to the fact that they are ETFs, would be recommended for long term positions, so it is important to take the expense ratio into consideration as this could influence potential profits.
The cost of both ETFs is relatively high, when considering the expense ratio of another popular ETF, the VOO, is only 0.03%
This can add up when investing large quantities of money, so make sure that you have the capital available to account for these expenses, which should occur every year.
ICLN vs QCLN: Dividend income
Dividends of ICLN vs QCLN are important to consider, especially due to the high cost. The dividends between the two differ drastically with the ICLN at 1.19% and the QCLN at 0.02% in August 2022. In this case, it is possible for the ICLN to offset the large expense ratio, while this does not occur for the QCLN.
ICLN vs QCLN: Conclusion
Both ETFs are a great way to invest in the future of energy. The world cannot rely on fossil fuels and historical methods to continue powering itself, so many of the companies involved with newer ways of energy production may experience growth in the future.
A large number of companies within the ICLN and QCLN overlap one another which can sometimes make it difficult to choose. Ultimately the cost as well as differences in investment strategy within the ETFs will be the deciding factor for most.
The energy market as a whole is still very volatile. For this reason, regardless of which you decide suits your portfolio and investment strategy the best, it is always important to ensure that you diversify your portfolio in order to manage risk.
You might be also interested in SPLG vs SPY and VUG vs VOO: Best Vanguard ETF for You?