4 Alternative Energy ETFs To Consider
Neither tree-hugging, anti-oil hippies nor gas-guzzling SUV drivers can deny the upside potential for alternative energy companies.
Everything from solar to wind to geothermal has the potential to be winners in the coming decades as the entire globe looks for fossil fuel alternatives. In 2013, solar accounted for 29 percent of all new electricity generation, up from 10 percent in 2012.
Investors have a bevy of options for investing in the sector. By choosing an ETF the company-specific risk and in some instances sector-specific risk is removed. A few of the ETFs available for investors are listed below.
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First Trust NASDAQ Clean Edge US ETF (NASDAQ: QCLN)
First Trust NASDAQ Clean Edge US tracks the performance of clean energy companies in the U.S that are involved in manufacturing, development, distribution and installation of clean-energy technology. As of September 16, QCLN has 50 holdings, with its top investments in Tesla Motors Inc with a 9.3 percent holding, First Solar Inc. at 7.7 percent and Linear Technology Corporation totaling 7.2 percent.
QCLN has performed well over the last 12 months and is up 32.3 percent; however, that performance is mostly from the first half of the period. The ETF is up just 1 percent over the last six months. An expense ratio of 0.6 percent puts it right in line with its competitors.
Guggenheim Solar ETF (NYSE: TAN)
The Guggenheim Solar ETF follows a wide range of international companies associated with solar energy, from companies that sell energy derived from solar power to companies that supply raw materials for the production of solar power equipment.
As of September 16, TAN has 26 holdings with its largest positions being SolarCity Corp at 7.7 percent, First Solar at 7.6 percent and Sunedison Inc at 7.4 percent. TAN is up 49 percent over the last 12 weeks, but even with that bounce is down 4.7 percent over the last six months. With an expense ratio of 0.7 percent it is slightly more expensive than its competitors.
First Trust Global Wind Energy ETF (NYSE: FAN)
First Trust Global Wind Energy consists of 49 companies from around the world that are associated with every aspect of wind energy production and distribution; offering the investor a diverse approach to the niche sector. As of September 16, the top holdings include Iberdrola SA at 8.1 percent, China Longyuan Power Group-H with a 7.5 percent holding and EDP Renovaveis SA at 6.6 percent.
FAN is up 20 percent over the last 12 months but down 1 percent over the last six. FAN has an expense ratio of 0.6 percent.
PowerShares WilderHill Clean Energy ETF (NYSE: PBW)
The PowerShares WilderHill Clean Energy ETF invests in companies, primarily small cap, that are involved with the advancement of the clean energy sector. As of September 16, it has 57 holdings with its top positions being Enphase Energy Inc at 4.4 percent, Daqo New Energy Corp with a 3.1 percent holding and Canadian Solar Inc. at 3 percent.
PBW has performed the worst out of the four ETFs highlighted, only up 18 percent over the last 12 months and down 7.8 percent over the last six months. An expense ratio of 0.7 percent makes it a slightly expensive fund in this niche market.
To eliminate as much risk as possible both QCLN and PBW offer the best options for investors because of their exposure to various sectors. While both have the term “clean energy” in the name of the ETF, they take a very different approach to building the portfolios. This is why it is so important to look at top holdings and analyze the ETF before blindly buying.
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