We all know that oil is a limited resource. But we also know that if we don’t find alternative sources of energy, the world as we know it will no longer exist. That’s why alternative energy exchange traded funds (ETFs) are so tantalizing to think about.
Alternative energy ETFs come in two basic forms: those that invest in a wide swath and those that invest in a concentrated area of the alternative energy market. For example, First Trust Global Wind Energy (NYSEArca: FAN) invests in companies that are involved in the manufacturing and production of wind energy.
Recently, with the drastic drop in oil prices, alternative energy funds have suffered. This makes sense considering that alternative energy is yet to produce sensible economics—oil is still cheaper to use than alternative energy. And naturally, when oil prices are down, there’s far less incentive to hunt down cheaper sources of power. [The Next Move for Oil and Gas ETFs.]
However, alternative energy ETFs do have some things going in their favor. One huge advantage is that governments are increasingly giving support to alternative energy development, reports Sequoia of FavStocks.com. Governments have put their money where their policy is by granting huge financial incentives to alternative energy companies. For example, the U.S. Treasury is offering grants to companies wishing to start renewable energy projects. And although China does not have strict emissions policies like those in other developed countries, they are investing $450 billion into wind and solar power. [China Gives Wind ETFs a Tailwind.]
Technology will continue to develop and make alternative energy more economical. The big question is how long before that happens? Investors who are bullish on the advancement of alternative energy can start building alternative energy portfolios with ETFs. [Alternative Energy ETFs Not So Alternative Anymore.]