(MoneyWatch) You can have it all -- you can save the earth and make money by investing in clean energy. At least that's what I've heard said many times. After all, there is a finite amount of fossil fuels on the planet, and any innovator who can develop the next clean and cheap source of energy is likely to become quite wealthy, as will those who are savvy enough to invest in it. The ultimate win-win, right?
Yet clean energy investing has had a dismal performance over the past five years. Take the iShares S&P Global Clean Energy ETF (ICLN), which owns the 30 most liquid clean energy companies across the globe. These companies produce energy through biofuels, ethanol, geothermal, hydro, solar and wind.
How has the clean energy ETF performed? Well, let me just say that the investors didn't exactly get rich. In fact, this ETF has lost 76.2 percent of its value since 2009, compared to the MSCI Global All-World index which gained 59.8 percent. The huge performance gap didn't come from fees, as the iShares fund has a rather low 0.48 percent annual expense ratio. This is one of the lowest fees in socially responsible classification of funds. Other clean energy funds had similar disastrous results.
In spite of a great story line and global government funding, clean energy investing bombed over the past five years. The most publicized example was solar panel manufacturer Solyndra, which had a market value of about $2 billion in 2009. Two years later, it filed for bankruptcy after receiving $535 million in loan guarantees from the U.S. government.
That investing in the Earth via clean energy has so far proven to be bad for the wallet is not a new story. It's just a repeat of other hot investments that went sour. Six years ago, oil was selling for over $140 a barrel and clean energy stocks were hot. ETFs were launched, as they typically are after a sector has been hot, and people rushed in to buy them. Then came the recession and the price of oil plummeted.
While the price of oil has largely recovered, clean energy stocks haven't. Hydraulic fracking technology has lead to another fossil fuel energy boom here in the United States.
Social responsibility is a good thing, but I've never bought a socially responsible fund. By owning broad index funds, I own socially responsible companies along with every other company on the planet.
Because it is more expensive to screen for socially acceptable investments, they tend to under-perform the broad index funds owning everything. Author and advisor Rick Ferri has good advice: he recommends buying the whole market and using the extra returns to make a financial contribution to whatever Earth-friendly cause you believe in.