Amid widespread environmental concerns, alternative energy is
making a strong headway in the power generation fuel mix in many
developed and developing nations. While market conditions were
not in favor of alternative sources for the last two years, 2013
can be considered as a year of stimulation for investors in
the clean energy space.
A major growth area in the renewable space is solar energy. The
solar industry appeared to be doomed in 2012. However, But this
year has seen a remarkable pullback supported by a number of
driving forces. (Read:
Inside the Incredible Surge in Solar ETFs
Again, President Obama's fresh environmental plan has proved to
be beneficial for renewable energy stocks. (Read:
3 ETFs to Buy for Obama's Climate Change Plan
). With the increasing need to develop renewable energy in
response to stringent environmental regulations, countries
worldwide are relying on solar energy for generating electricity.
Globally, China leads the world in total electricity generation
from renewable sources, helped by its increased allegiance in
recent times to the alternative path. The dragon is followed
closely by the U.S., Brazil and Canada.
Recently the Chinese government's announcement of offering 50%
refunds to the value added tax (VAT) for sales taking place from
Oct 2013 through Dec 2015 will boost the domestic solar industry.
The subsidy offered by the Chinese government, which has already
set a solar installation target of 35 GW by 2015, lifted Chinese
solar stocks across the board.
Among the other alternative energies, the U.S. wind industry is
now gradually picking up despite the fact that the second quarter
of 2013 witnessed no new installations. As of Jun 30, over 1,280
MW of projects were under construction spreading across eight
states: Alaska, California, Colorado, Kansas, Michigan, Nebraska,
New York and Texas. (Read:
Behind the Surge in the Wind Power ETF
ETFs to Tap the Sector
For investors seeking to play this trend in ETF form, the
following series of alternative energy ETFs could make for
WilderHill Clean Energy Portfolio
Launched in March 2005, PBW tracks the Wilderhill Clean Energy
Index and manages an asset base of $213.5 million which it
invests in a portfolio of 51 stocks.
It is well diversified across various sectors. Information
Technology takes the top spot with a 46.46% allocation followed
by Industrials (20.39%) and Materials (10.78%).
The fund's top 10 holdings jointly contribute 28.08% towards the
fund. The product invests almost 90% in companies related to
cleaner energy and it charges a hefty 70 basis points in fees.
PBW has rewarded investors with solid returns of 61.41% over the
past one year.
Market Vectors Global Alternative Energy ETF
Launched in May 2007, GEX tracks the Ardour Global Index,
focusing on companies that are primarily engaged in the business
of alternative energy comprising solar power, bio energy, wind
power, hydro power and geothermal energy.
The fund holds about 31 stocks in its pocket and has assets under
management of $92.9 million and charges an expense ratio of 62
basis points annually. The fund is liquid with 14,580 shares
changing hands in a day on an average.
Apart from robust holdings in the U.S., the product offers solid
exposure to Europe and some Asian countries. Again, Industrials,
Information Technology and Utilities take the top three spots,
adding 83.8% in sector holdings. Further, the fund's top 10
holdings jointly contribute 63.58% to the fund.
Tesla Motors Inc.
(CREE) are the top three holdings, with 30.84% of asset
allocation in total.
Global Clean Energy Portfolio
This ETF follows the WilderHill New Energy Global Innovation
Index, giving investors exposure to about 97 companies that are
engaged in renewable sources of energy and technologies
facilitating cleaner energy.
Assets under management come in at just over $78.9 million and
this ETF charges investors 75 basis points a year in fees. In
terms of performance, PBD has rewarded investors with solid
returns of 48.78% year to date.
PBD is heavy in Information Technology, as this represents 35.21%
of the fund. This is followed by Industrials (29.63%) and
Utilities (20.17%). In terms of countries, the U.S. dominates
with 36.03% followed by China having 13.13%.
First Trust Nasdaq Clean Energy Green Energy
This ETF tracks the NASDAQ Clean Edge Green Energy Index and
follows a benchmark of clean energy companies, giving exposure to
43 companies in total with an asset base of $79.6 million. The
fund charges investors 60 basis points a year in fees for the
exposure. The top 10 holdings comprise 58.27% of the total fund.
Importantly, this product has rewarded investors with a solid
return of 77.20% so far this year.
Technology firms dominate this ETF, accounting for 37.66% of the
assets. Beyond technology though, Oil and Gas stocks make up
about 22.80%, while Industrials, Consumer Goods and Utilities
hold 18.73%, 7.57% and 7.44%, respectively. In terms of
geographical diversification, the fund is almost entirely focused
on the U.S. market.
iShares Global Clean Energy ETF
This ETF tracks the S&P Global Clean Energy Index with 32
holdings and an asset base of $44.1 million. ICLN has given
impressive returns of 46.84% on a year-to-date basis and charges
investors 48 basis points a year in fees for the exposure.
In terms of geographical breakdown, Japan leads the list with
20.86%, while China holds the second spot with 17.55%. The U.S.
comes third occupying 13.73% of the holdings. ICLN is more
inclined toward electric utilities, representing 25.33% of the
fund, though semiconductor and semiconductor equipment (23.20%),
independent power producers and energy traders (21.57%) and
electrical equipment (16.95%) all receive big chunks as well. The
fund appears to be highly concentrated in the top 10 holdings
with a share of 50.51%.
Since the pulse of the alternative energy industry is closely
tied to the swings in the macro-economy, until the picture
becomes rosier we do not expect to witness many stand-alone
alternative energy companies.
As per the Energy Information Administration (EIA), renewable
generating capacity will account for nearly one-fifth of total
capacity in 2040. Of this, solar generation will be the primary
contributor to renewable capacity growth, with wind capacity
occupying the second spot.
Recent moves in the sector have been encouraging, and if these
trends continue, there are clearly more gains that can be had for
risk-tolerant investors looking for a new play in the space.
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MKT VEC-GLBL AE (GEX): ETF Research Reports
ISHARS-GL CL EN (ICLN): ETF Research Reports
PWRSH-GLB CL-EY (PBD): ETF Research Reports
PWRSH-W CL EGY (PBW): ETF Research Reports
NASDAQ-CL EDG G (QCLN): ETF Research Reports
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