Here’s a look at some of the newest exchange-traded funds that give investors exposure to alternative energy companies.
Producing electric power from the wind or sun has always seemed like a great idea, but in reality it often turns out to be impractical and difficult to earn a profit.
So it goes as well for investors. Short of owning your own windmill, there have been precious few options for those seeking to capitalize on the current groundswell of interest in alternative-energy and environmental technologies. Dozens of publicly listed companies engage in all sorts of ventures from geothermal power plants to hydrogen fuel cells, yet buying their shares means betting on a single company’s approach.
That’s highly risky, even for those with a strong understanding of the company’s technology and competitive position. While there are numerous mutual funds that are marketed as”socially responsible investments,”they usually don’t target alternative energy per se and often own shares of larger companies that have nothing to do with alternative energy.
Recognizing the problem, Wall Street is moving to satisfy investor cravings for a way to play the alternative energy”story”with a new crop of exchange-traded funds that give investors exposure to alternative energy companies in a straightforward, cost-effective way, yet without the risk of putting all their eggs in one basket. Several such ETFs have been launched in 2007, and more are in development.
Futures on the Way
As of mid-2007 there are at least five ETFs heavily focused on alternative energy and a host of new indexes that let investors track the performance of the industry as a whole as well as of subsegments like energy generation.
In early May, mutual fund company Van Eck Global’s Global Alternative Energy ETF (GEX) started trading on the New York Stock Exchange. The fund tracks the Ardour Global Index (Extra Liquid), composed of stocks in 30 publicly traded companies engaged in alternative energy production. The New York Mercantile Exchange is planning to list a futures contract tied to the Ardour index as well.
Van Eck’s new ETF will have to compete with the granddaddy of alternative energy ETFs, PowerShares WilderHill Clean Energy (PBW). It tracks the WilderHill Clean Energy index. The index is composed of 40 different companies involved in alternative energy production or technology, none of which represents more than 4% of the total. The Clean Energy Portfolio has a market capitalization of almost $1 billion, and the Chicago Climate Futures Exchange plans to list futures on the index later in 2007.
Clean Is In PowerShares also markets another ETF based on a WilderHill index, the Progressive Energy Portfolio (PUW), which includes companies whose products lessen the environmental impact of existing fuel sources and improves the efficiency of their use. It started trading in October, 2006, and has a market capitalization of about $30 million. PowerShares has a third alternative energy-related ETF, the Cleantech Portfolio (PZD), which tracks the Cleantech Index published by Cleantech Venture Network. It tracks about 50 companies, including alternative energy as well as water resources and purification, advanced materials, and logistics and has a market capitalization of about $22 million.
The First Trust NASDAQ Clean Edge ETF (QCLN), which started trading in February, 2007, covers five subsectors of the alternative energy industry: renewable power generation, renewable fuels, energy storage and conversion, energy intelligence, and advanced energy-related materials. It has a market capitalization of about $20 million.
Several other alternative energy indices have also been announced that may lead to new ETFs in the future. New York-based investment bank Jefferies&Co. announced the creation of a series of three clean technology indexes (one composite, as well as one focused on energy generation and another on energy storage).