Renewable sources of energy are fast gaining traction,
especially with concerns over pollution and carbon emissions. The
world is slowly shifting towards clean energy sources like solar
energy, hydro-power, wind power and clean burning natural
Wind energy has gained popularity due to the fact that it
supplies clean energy without harming the environment unlike
fossil fuels. Though wind turbines are considered costly
investments, it uses little land and can be widely distributed
and is growing rapidly at more than 25% per
Adoption of wind energy technique provides multiple benefits:
The land owners benefit from wind farming as they get good
compensation for leasing their land; the company benefits from
government subsidies; the environment benefits due to zero-carbon
emission; and the society and economy benefit at large.
The U.S. Energy Information Administration (EIA) estimates
that by 2040, renewable sources of energy except hydropower will
account for 32% of the overall growth in electricity generation.
Capital-cost reductions in wind energy (13%) and government
support have given a boost to this important resource (read
Alternative Energy Stock Outlook - June 2013
In fact, a research by Bloomberg New Energy Finance (BNEF)
predicts that wind and solar will take up the largest shares of
new power capacity added in terms of GW by 2030, accounting for
30% and 24% respectively. By 2030, renewable technologies will
account for 50% of new power generation capacity installed around
Investors have been betting on clean energy
for years with disappointing results across the board. Many funds
in this space have lost in the double digits -- if not worse-- in
years past, as a reduction in government subsidies, low prices
for traditional fuel sources, and a general lack demand for these
risky companies have combined to dull the investment case for
alternative energy ETFs.
Despite all odds, the good news is that investors have seen a
bit of a reversal in the clean energy segment so far in 2013.
Almost all the stocks in the segment have had a good performance
this year, thanks to a growing population, economic growth and
better regulations in place which have acted as catalysts to the
clean energy sector (see
Clean Energy ETFs: The Real Bull Market?
Wind ETF in focus
Interestingly, recent investor interest in the clean energy
space has largely been directed to wind energy ETF. In spite of
the fact that the clean energy sector has suffered setbacks over
years, this is now an ideal time to invest in this space.
Investors who wish a pure play in this challenging and emerging
wind energy space, the only available option is reviewed in
First Trust ISE Global Wind Energy Index Fund
Launched in June 2008, FAN is a passively managed fund and is
the only option available for investors seeking to play in the
wind energy space. The fund tracks the ISE Global Wind Energy
The ETF currently holds 51 securities in its basket and mostly
comprised of international stocks with European companies taking
about two-thirds of the exposure. From a market cap look, it is
pretty even among large mid and small caps, although there is
definitely a small cap bias in this product.
The ETF is heavily concentrated in its top 10 holdings into
which it puts more than 60% of the total assets. Hence, the
returns of the fund are largely dependent on the performance of
these securities. Vestas Wind Systems, Gamesa Corporacion
Tecnologica, S.A. and China Longyuan Power Group-H are its top
three holdings which jointly contribute 22% to the fund (also see
Go Green with These 3 Clean Energy ETFs
Sector-wise, utilities take the top spot, followed by
industrials and energy. The top 3 country holdings for the
product include Spain, Germany and U.S. which combine to
contribute 48% of the fund's assets.
FAN trades roughly 30,000 shares a day while costs come in at
60bps in fees per year. The ETF has posted solid returns of
33.81% as of June 30 for a one-year period and has given a decent
dividend yield of 1.23% as well.
FAN has recently hit a 52-week high of $9.70. On July 26, FAN
recorded solid inflows, suggesting that there is good investor
demand for the product.
The Bottom Line
The alternative energy sector has been running like the wind,
crushing the broad market in the past few months by a pretty wide
margin. Given the dramatic move higher in the space, one can
certainly argue that clean energy is finally in a bull market
Behind the Rebound in Energy ETFs
Current trends are in favor of the wind energy sector and we
see the space nicely rebounding with good potential to
outperform. It's good to hoist your sail when the wind is fair,
as the saying goes, and that definitely appears to be the case
for investing in FAN right now.
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