Exchange traded funds (ETFs) offer investors a perfect way to gain targeted access to specialized areas of the market, helping to manage risk within a diversified portfolio. Alternative energy is an area set to take off under Obama’s stimulus plan, and one way to play it is with a green transportation ETF.Specific ETFs can help investors manage risk through proper diversification within a portfolio, along with following market trends without the volatility of single stock picking. Roger Nusbaum for TheStreet explains that the PowerShares Global Progressive Transportation Portfolio (PTRP) allows investors to follow green transportation trends, but is also a great way to manage risk within a portfolio by taking advantage of the stock market’s cycle.

Some examples:

  • PTRP has about 31% allocated to small-cap companies, which tend to do better coming out of bear markets. So, while investing in green transportation could be viewed as higher-risk, there is also more potential.
  • It’s also a way to take advantage of a global recovery – while nearly 40% is in the United States, the other two-thirds of the fund is overseas.
  • Green energy is catching on, too. This fund’s objective is to track companies that benefit from a societal transition toward using more efficient means of transportation.

When investing in such a fund, one should look at it from both a “bottom up” and “top down” perspective. By doing research on the financial state of the companies the fund holds, the demand for their products and industry trends, along with the direction the market is going,  investors can move through market cycles rather seamlessly with ETFs. Knowing what you own, how it can work for you and watching the trend lines may help make you a more successful investor.

There are many ETFs that help you play trends in the stock market – it’s just a matter of seeking them out.

  • Global Progressive Transportation Portfolio (PTRP): up 19.3% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.