This Top Energy ETF Holds 112 Stocks. But These 2 Make Up Over 33% of Its Holdings.

The iShares Global Clean Energy ETF (ICLN) is a popular choice among investors seeking exposure to the growing clean energy sector. With a broad portfolio of 112 stocks, ICLN offers diversification and the potential for significant growth. However, a closer look at the ETF's holdings reveals that two stocks, NextEra Energy (NEE) and Enphase Energy (ENPH), make up over 33% of its total assets. This concentration raises questions about the ETF's diversification and risk profile. Let's delve into the specific characteristics of these two dominant stocks and their impact on the ETF's overall performance.

NextEra Energy (NEE) is the world's largest producer of wind and solar energy, with a significant presence in the United States. The company's dominant position in the renewable energy sector contributes to the ETF's exposure to the growing demand for clean energy. NEE's strong financial performance, consistent dividend growth, and expansion into international markets further enhance the ETF's overall stability and growth potential. However, the high concentration of NEE in ICLN's portfolio may limit the ETF's diversification and increase its exposure to the specific risks associated with this company.

Enphase Energy (ENPH) is a market leader in microinverter-based solar systems, energy storage, and EV charging systems. ENPH's strong pricing power, elevated margins due to US tax credits, and growth opportunities in international markets make it an attractive addition to the ETF's portfolio. However, the high concentration of ENPH in ICLN's holdings may also limit the ETF's diversification and expose it to the specific risks associated with this company.

The concentration of NEE and ENPH in ICLN's portfolio raises questions about the ETF's diversification and risk profile compared to other energy ETFs with a broader range of holdings. While the specific characteristics of these two dominant stocks contribute to the ETF's overall performance, their high concentration may limit the ETF's ability to weather the impact of a single stock's underperformance. Other energy ETFs, such as the First Trust Global Wind Energy ETF (FAN), may offer better diversification and a lower risk profile due to their broader range of holdings.

In conclusion, the iShares Global Clean Energy ETF (ICLN) offers investors exposure to the growing clean energy sector through a broad portfolio of 112 stocks. However, the high concentration of NextEra Energy (NEE) and Enphase Energy (ENPH) in the ETF's holdings may limit its diversification and increase its exposure to the specific risks associated with these companies. Investors should carefully consider the potential benefits and risks of investing in an ETF with such a high concentration of two stocks and monitor the ETF's holdings and performance over time to ensure that it aligns with their investment objectives and risk tolerance.