Clean Energy ETFs

It may not be evident to all, but since the completion of the November elections in the U.S., “alternative energy” focused ETFs have staged an impressive rally, closing at multi-month highs in some cases as recently to close out last week.

Examples within the space include the largest in terms of assets ($132 mln in AUM), PBW (PowerShares WilderHill Clean Energy) as well as NLR (Market Vectors Nuclear Energy) and PZD (PowerShares Cleantech) , and even the much maligned solar energy based ETFs such as TAN (Guggenheim Solar) and KWT (Market Vectors Solar Energy) have rallied fiercely in the short term.

In fact, if one quickly examines fourteen “Alternative Energy” based equity ETFs that are available to investors, one will note a recurring theme, swift rallies across the board since November whether the fund in question is related to “Wind Energy”, “Nuclear Energy,” or more broadly categorized as “Clean Energy.”

In addition to relatively low levels of assets under management in these funds (as PBW is the largest in this sense, but only has approximately $132 million in the fund currently), another common thread here is “low trading volume” as PBW averages about 210,000 shares per day, but none of the other funds in this category register more than 50,000 shares in daily turnover.

Thus, care should be taken in terms of executing larger positions in this space, because in many cases from an underlying portfolio standpoint, the individual equity holdings in these ETFs are microcap, small, and mid cap names (PBW for example has 44.38% microcap exposure, 29.81% small-cap, 17.55% mid-cap, and only 8.01% large cap) and/or internationally based names and in some cases “ordinary” shares listed on overseas exchange markets (making “time of day” for execution a pivotal part of the trade execution decision for portfolio managers).