There is no denying that nearly any ETF with the alternative or clean energy labels is among this year’s best sector funds. The proof is in the pudding. Of the top-10 non-leveraged sector ETFs this year, at least five have “solar,” “wind” or “alternative energy” in their names.
Stunning upside delivered by alternative energy ETFs has been led by the Guggenheim Solar Energy ETF (NYSEArca: TAN), which is up 39.5% in the past three months and is flirting with new all-time highs. One technical analyst recently pointed out that despite TAN’s amazing run, it could offer upside to the $40 area. [Solar ETF Aims for All-Time High]
The clean energy sector has also gathered support based on high gas and oil prices. Further issues surrounding global warming and high levels of carbon and greenhouse gas emissions have continued to boost the sector. Additionally, some ETFs like the Market Vectors Global Alternative Energy ETF (NYSEArca: GEX), have powered higher due to significant exposure to Elon Musk’s Tesla (NasdaqGM: TSLA), the electric car maker whose shares have risen more than fivefold this year. [This ETF May Have the Perfect Combination]
With some of the gains posted by alternative energy ETFs this year, additional significant upside may appear hard to come by, but the opposite may actually be true as at least one strategist sees a pair of clean energy funds – the $75.6 million PowerShares Cleantech Portfolio (NYSEArca: PZD) and the $76.1 million PowerShares Global Clean Energy Portfolio (NYSE: PBD) – rallying in the fourth quarter.
“Some megatrends make these ETFs very compelling: 1) Population growth is expected to reach 9 billion by 2030 (we’re close to 7 billion now) and 2) pollution and climate change,” said Andrew Bellak of Massachusetts-based StakeHolders Capital in an interview with Investor’s Business Daily.
“There is better waste-to-energy technology under development, which will help, but will never be a stand-alone solution. Reducing and eliminating pollution just makes common sense even if it did not contribute to causing climate change, which it does,” said Bellak in the interview. “Therefore clean technology has a bright future. The same goes for alternative or renewable energy. It is cleaner, safer and geopolitically less risky. These companies will be the target for takeovers by traditional, cash-rich, fossil-fuel companies, who want to buy their way into the game and remain an energy player.
PBD and PZD have not been short on catalysts this year. The two are up an average of 33%. PBD, the global play of the pair, allocates about 23% of its weight to emerging markets, including an almost 13% weight to China. China is not only looking to reduce its massive pollution footprint, but the country has played an integral in the resurgence of solar ETFs this year because Beijing has provided financial support to Chinese solar firms that were previously on the brink of collapse.
PZD is more heavily allocated to developed markets with a 2.2% weight to China the only emerging markets exposure among its top-seven country weights. While PBD is advertised as a clean energy ETF, the fund is home to several auto parts suppliers, which means the fund has benefited from soaring global automotive demand. [Auto ETF Revs up as Sales Hit Six-Year High]
PowerShares Cleantech Portfolio
ETF Trends editorial team contributed to this post.