Market Overview

Clean Energy ETFs: Losers Of The Crude Oil Crash?


October was extremely choppy for oil prices. After hovering at triple-digits levels for the first half of the year, oil prices are now trading at multi-year lows. Increased supplies resulting in abundant inventory, strength in the greenback, slower manufacturing activities in the Euro zone – a net oil importer – and a sluggish Chinese economy pushed the oil prices lower despite moderate threats of supply disruption from the ongoing turmoil in Iraq.

Amid tensions, Saudi Arabia – which boasts a three-decade high output – currently plans to offer oil to the U.S. at discounted prices. This posed another round of threats to the already suffering oil prices. Brent crude oil dipped to $82 a barrel on November 6 while U.S. crude was down 1.3% to $77.63 on the same day. In fact, Brent's value plunged about 30% since June (read: 4 Inverse ETFs to Short Oil as Crude Prices Tumble).

OPEC slashed the demand outlook for oil too by reducing its estimates through 2035 barring 2015. The fall in demand could be as acute as the 14-year low in 2017, per the group. Likely start of production in Libya after a prolonged unrest is another threat to energy prices. While pressure had mounted in the conventional energy field, the oil crash and its ripples also played a key role in holding back returns in the clean energy space.

Clean Energy ETFs in Focus

No clean energy ETF added more than 4% in the last one month.  Year to date, only two products Market Vectors Global Alternative Energy ETF (GEX) and Global Clean Energy Portfolio (PBD) returned positively, those too with minor returns.

The space was a huge gainer last year thanks to its core focus on a number of growth stocks which bounced back with the stock market.  But now with the U.S. economy back in the recovery path and other developed nations buckling under pressure, a hitch in the growth space has come into the picture (read: Alternative Energy ETF Investing 101).

Also, the U.S. economy is likely to witness a monetary policy tightening next year which might cause some uncertainty in the market. Now, with cooler oil prices, the trend of a bull run in the clear energy space seems to have evaporated. Below, we highlight four big losers in the space:

Guggenheim Solar ETF (TAN)

As solar energy drives maximum growth in the renewable energy space, the performance of this ETF deserves a special look. This fund follows the MAC Global Solar Energy Index, holding 29 stocks in the basket. It is highly concentrated on the top 10 firms, accounting for about three-fifth of total assets.

American firms dominate the fund's portfolio with nearly 47.3%, followed by China (21.43%) and Hong Kong (19.42%). The product has amassed $338.5 million in its asset base and trades in a solid volume of nearly 200,000 shares a day. It charges investors 71 bps in fees per year. The fund has lost over 2.4% in the past one month.

Market Vectors Solar Energy ETF (KWT)

This fund manages a $21.1 million asset base and tracks the Market Vectors Global Solar Energy Index. In total, the ETF holds 34 solar stocks in its basket with the largest allocation going to First Solar, SolarCity and Hanergy Solar (see: all the Alternative Energy ETFs here).

In terms of country exposure, the U.S. takes more than one-third of the portfolio, closely followed by China (34.7%) and Taiwan (15.5%). The product has an expense ratio of 0.66% and sees paltry volume of about 2,000 shares a day. The ETF has lost about 4.9% in the trailing one-month period.

iShares Global Clean Energy ETF (ICLN)
This ETF tracks the S&P Global Clean Energy Index with 31 holdings and an asset base of about $64 million. ICLN has lost about 1.5% in the last one month and charges investors 47 basis points a year in fees for the exposure.

In terms of geographical breakdown, U.S. leads the list with 22.57%, while China holds the second spot with 18.75%. Hanergy, Electric Power Development and China Longyuan Power Group are the top three holdings.

First Trust Nasdaq Clean Energy Green Energy Index (QCLN)

This ETF tracks the NASDAQ Clean Edge Green Energy Index and follows a benchmark of clean energy companies, giving exposure to 48 such companies in total with an asset base of $110 million.

The fund charges investors 60 basis points a year in fees for the exposure. This product has lost about 0.1% in the past one month (see Clean Energy ETFs for A Green Portfolio).

Technology firms dominate this ETF, accounting for 35.18% of the assets. Beyond technology, Oil and Gas stocks make up about 25.97%, taking the second spot. In terms of geographical diversification, the fund is almost entirely focused on the U.S. market.

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