As consumers worldwide become more environmentally aware and purchase more environmentally-friendly products, "green" exchange traded funds (ETFs) benefit. In fact, global venture capital invested in the clean technology industry has grown 35% since 2006 and now totals more than $1.1 billion, says Don Dion for Seeking Alpha. One such ETF that benefits from this is the PowerShares Cleantech Portfolio (PZD). Currently, it’s up 31.6% year-to-date.

PZD includes companies from a broad range of sectors that are leaders in clean technology innovation. Holdings in PZD include stocks of biofuel producers, wastewater-treatment firms, transportation companies, energy storage manufacturers, and many other types of businesses that produce and commercialize products supporting environmental sustainability. Although PZD may share its philosophical foundations with clean energy funds such as PowerShares WilderHill Progressive Energy (PUW) or PowerShares WilderHill Clean Energy (PBW), it offers a distinct and broader take on green investing. PBW focuses on companies that support renewable and cleaner sources of energy and technologies that facilitate cleaner 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.

The Cleantech Index focuses on companies with innovative and emerging technologies, so most of the stocks that occupy the index are shares of small cutting-edge firms. The benchmark won’t include stocks with market capitalizations of less than $150 million. However, PZD recently held nearly 12% of its assets in microcaps and its portfolio’s average market capitalization stood at just $2.77 billion.

The clean technology industry is likely to benefit from the race to develop low-carbon and carbon-free technologies that can reduce the global economy’s reliance on oil and therefore the risk of severe global warming. Some research predicts that alternative fuels such as biodiesel and ethanol will grow into a $52.5 billion industry by 2015, up from $15.7 billion in 2005. Similarly, sales of solar products, an $11.2 billion industry in 2005, could nearly quintuple by 2015 and wind power sales could grow from $11.8 billion in 2005 to $48.5 billion in 2015.

Tags: Green ETFs, Sector ETFs, Small-Cap