May 21, 2007 at 1:22 am by Tom Lydon
As the price of energy continues to rise there is going to be more demand for alternative options and that includes exchange traded fund (ETF) investing. For the past few weeks, the hottest topic has been "green" investing (we’ve provide a list of some of the articles below). There are a handful of “green” ETF options currently available for investors and more are likely to follow. There is still relatively little money in the ETFs, the two largest have about $22 million in assets each.
There are several reasons for the recent buzz. One, Al Gore’s movie, “An Inconvenient Truth”, has brought the topic of global warming to the forefront. Another reason is President Bush remarked about the greenhouse issues in his State of the Union last January. Also, the Supreme Court recently ruled on a case regarding greenhouse-gas emissions as pollutants and the role of government regulation.
Green ETFs include:
- PowerShares WilderHill (PBW) focus’ on companies that support renewable and cleaner sources of energy and technologies that facilitate cleaner energy. PBW is up 9% year-to-date.
- PowerShares WilderHill Progressive Energy (PUW) is an equal-weighted ETF that holds stocks involved in transitional energy technologies with an emphasis on improving the use of fossil fuels. This is one of the larger ETFs, up 13.6%.
- PowerShares Cleantech (PZD) invests in companies that improve operational performance, productivity or efficiency, while reducing costs, inputs, energy consumption, waste or pollution. So far, PZD has returned 9% for the year.
- First Trust NASDAQ Clean Edge US Liquid Series (QCLN) consists of companies shifting to cleaner energy, such as solar and bio-fuels. QCLN launched in February 2007.
- Market Vectors Global Alternative Energy (GEX) holds companies engaged in core industry sectors: alternative energy sources (wind, bio-fuel, solar, geo-thermal); distributed generation; environmental technologies related to alternative energy; energy efficiency; and enabling technologies. This ETF launched this month.
- XShares is working with the Chicago Climate Exchange to offer the first ETF based on carbon emission credits.
There is no evidence these funds do better or worse than the mainstream. Although their objectives and missions have a good cause behind them, it doesn’t necessarily translate into better performance. However, the year-to-date performances have held up and are doing better than the market indexes. As with any investment, we stress the importance of reviewing the ETF and the holdings that make it up, as well as establishing an exit strategy should the “hot” topic fizzle out.
Here are just a few of the recent news articles on alternative energy:
Tags | gex, Green ETFs
May 21st, 2007 at 11:17 am
What about the Claymore/LGA GREEN ETF????????
May 21st, 2007 at 2:28 pm
The Market Vectors - Global Alternative Energy ETF has 3 important features that investors should keep in mind when evaluating investment opportunities in the alternative energy space:
1. This ETF is global with over 55% of the total market cap of companies in the ETF coming from non-US companies.
2. For a company to get included in the Index and therefore in the ETF, it must derive at least 50% of its revenue from alternative energy. This ETF delivers a “pure play.”
3. Based on market cap, about 70% of this ETF is in firms classified as being in renewable energy (wind, solar, bio-fuels, thermal, hydro, etc.)
May 23rd, 2007 at 1:12 pm
Thank you Derryk for pointing this out. Sorry to have missed this one. Yes, there is the Claymore/LGA Green (GRN) which was launched last December. The ETF holds companies with the best combination of environmental performance trends respective to their industry. Most of the holdings are large caps.
Harvey, thank you for your information on the Market Vectors. It is important for investors to have as much information as they can when looking into ETFs, no matter what area.
Tom