Clean Energy ETFs

The Nitty Gritty on Clean Energy Exchange Traded Funds

Written by Brian Hicks
Posted March 25, 2008

They're a topic we've glossed over several times. But, along with the rest of the market, clean energy ETFs have had a bumpy ride so far this year.

Now, with light seemingly starting to shine at the end of the tunnel, it's time to revisit these funds that offer blanket coverage of an entire sector.

Last year, of course, clean energy exchange traded funds performed beautifully. Just take a look at a handful of funds along with their 2007 returns:

  • PowerShares WilderHill Clean Energy (AMEX: PBW) — 58%
  • First Trust NASDAQ Clean Edge US (NASDAQ: QCLN) — 48%
  • Market Vectors Global Alternative Energy (NYSE: GEX) — 45%
  • PowerShares Cleantech Portfolio (AMEX: PZD) — 43%
  • PowerShares Global Clean Energy Portfolio (AMEX: PBD) — 26%

In 2007, the Dow Jones Industrial Average (DJI) returned just 6%.

This year, however, clean energy ETFs and the Dow have undergone a complete role reversal. The Dow has lost about 4%. The previously mentioned ETFs have lost anywhere from 14% to 31%.

But with credit worries beginning to ease—if only briefly—it may be time for these funds to take off again.

Holdings of Clean Energy ETFs

With clean energy technology rapidly developing, there is a plethora of angles to play. For the retail investor it may be hard to pick, with any degree of certainty, the winners in sectors diverse as solar, wind, geothermal, biomass, biofuel, green electronics, etc.

An ETF allows an investor to get broad exposure to a certain market.

The First Trust NASDAQ Clean Edge US Liquid Fund, for example, holds Cree Inc. (NASDAQ: CREE), First Solar, Inc. (NASDAQ: FSLR), Itron Inc. (NASDAQ: ITRI) and MEMC Electronic Materials (NYSE: WFR), among others.

So owning shares of that clean energy ETF will give you exposure to LED lighting, thin film solar, silicon supply, advanced meters and even water.

Of course, each fund offers different levels of exposure. The PowerShares WilderHill fund includes wind, geothermal and biofuel plays.

And the global funds will give you exposure to the big European wind and solar companies like Vestas (Copenhagen: VWS), Q-Cells (XETRA: QCE.DE) and Gamesa (MCE: GAM).

So if you're looking to get your feet wet in cleantech investments, an ETF could be right for you. The long-term upside is looking extremely strong, but you'll first have to figure out which ETF best suits your investment style.

But ETFs aren't for everyone. The same attributes that make them attractive to some can make them unattractive to others.

Here's what I mean.

ETF Drawbacks

Because they broadly track a specific market, ETFs are sometimes susceptible to overall market conditions.

So if wind-related stocks have a great week but solar stocks are down, your gains can sometimes be negated.

That's why the Alternative Energy Speculator recommends going after individual companies. The upside, both in the short and long term, is significantly higher. And when you follow our recommendations, the higher risk that is associated with individual stocks is often negated, because we do the due diligence for you.

With Alternative Energy Speculator you get the gains of companies that are doing well without having to deal with the ones that aren't—because we've already weeded them out.

Naturally, some of the stocks we recommend are held by clean energy ETFs. But the point is, with us you only get the good ones.

While most sectors—and certainly the Dow—are down for the year, check out just a few of the companies that call (or have called) one of the Alternative Energy portfolios home:

  • Applied Materials Inc. (NASDAQ: AMAT) — up 17% YTD
  • Capstone Turbine Corp. (NASDAQ: CPST) — up 25% YTD

And the Alternative Energy Speculator has been on fire lately.

Take a look at Arise Technologies Corp. (TORONTO: APV), which has risen 62% in the past three days:

arise chart

Or a Chinese solar company, my most recent recommendation, up 21% since last week.

Bottom line: As an investor, you have to decide what matters most to you. If you're happy with a diverse approach to the market with decent gains in the long term, then an ETF may be right for you. Just make sure you look at their holdings and how heavily vested the fund is in each stock.

But if you want explosive gains in the short to medium term with specific stocks that have already been researched and evaluated, then one of Green Chip's services may be what you're looking for.

To get a peek at the kinds of profits that could be awaiting you, I encourage you to read this report. It chronicles what is shaping up to be a massive profit-taking opportunity stemming from California's clean initiatives.

Until next time,

nick hodge