After all, Germany did say it will turn to more renewables such
as wind, solar and hydropower for future energy needs. And the news
follows Switzerland's announcement last week that it's also
planning on phasing out nuclear power by 2032.
Those dates are a long way off, but many are wondering:Will this
jump-start the renewables industry and, by extension, the ETFs
targeting the space?
It's too soon to jump to any conclusions. After all, several
countries, including the United States, China and France, have each
reiterated their stances toward pursuing nuclear programs.
Renewable energy is also heavily dependent on high oil prices
and government subsidies, the latter of which could face trouble as
European governments impose various austerity measures to cope with
the sovereign debt crisis.
Still, this is a significant development. Germany is an economic
powerhouse in Europe, and currently gets almost a quarter of its
energy supply from nuclear power. It's also a pioneer in renewable
energy-it already gets almost 17 percent of its energy from
Germany would need to more than double its renewable energy
output to make up for the shuttering of its electronuclear
industry. With an 11-year nuclear phaseout planned, it needs to add
2 percent of its power capacity in renewables per year, on average,
over the next decade.
For investors bullish on the industry and looking to gain
exposure, there are several ETFs designed to benefit from a global
shift to renewables.
The PowerShares Global Clean Energy ETF (NYSE
PBD currently has the most comprehensive global reach in the
renewable energy segment, holding companies involved in clean
energy from 10 different countries. It's also the largest of the
three funds I'll mention here, with $197 million in assets under
It has an expense ratio of 0.75 percent. This modified,
equal-weighted portfolio of 97 companies aims to track the
WilderHill New Energy Global Innovation Index. For investors
looking for a broad, diversified global exposure to the entire
industry, PBD might be the play.
The Market Vectors Alternative Energy ETF (NYSE
GEX is heavily weighted in solar, and replicates the Ardour
Global Index. While this fund has lost much of its star power in
the wake of the financial crisis, it was the former darling of the
renewables industry. That said, it still has $148 million in
GEX costs 0.60 percent and holds a market-cap-weighted portfolio
of 30 companies. Top holdings include First Solar (8.95 percent)
and Vestas Wind Systems (8.21 percent), the Danish wind power
giant. It might be the play for investors looking for heavier
concentration in several large companies (its top 10 holdings make
up over 55 percent of the portfolio).
iShares S&P Global Clean Energy ETF (NYSE
ICLN is the cheapest of the bunch, with an expense ratio of 0.48
percent. It holds a market-cap-weighted portfolio of roughly 30
companies and aims to track the S&P Global Clean Energy
The fund is the smallest of the three, with roughly $73 million
in assets. It's gotten little love from investors, though that
might be because it is the newest of the bunch-first-mover status
is especially important with these theme-based, niche funds.
However, ICLN provides a diversified exposure to clean energy
companies from 10 different countries.
There are a few additional factors to consider when analyzing
these funds. Germany's current renewable mix is tilted toward wind.
More than 40 percent of its overall renewable mix in 2009 was wind,
and it's planning on even more wind farms in the wake of the
nuclear incident in Japan.
Of the ETFs named here, GEX and ICLN have significant exposure
to wind-almost 20 percent-and may benefit if Germany becomes a
major driver of marginal renewable energy demand going forward.
Alternatively, ICLN has the largest tilt toward Europe and
German firms-39 percent and 7.5 percent, respectively, which might
benefit it if there is some sort of home bias in resource
What Germany and Switzerland make clear is that the ongoing
nuclear crisis in Japan following the earthquake and tsunami on
March 11 has governments around the world questioning nuclear
power. And after Germany's announcement over the weekend, the three
funds all posted big gains yesterday of more than 3 percent, though
not on any significant increase in volume.
For those investors who like the news coming out of Germany and
want direct exposure to the sector, ETFs continue to provide a
cheap, practical way to gain exposure (especially in a developing
sector where picking individual companies can be risky).
So did Germany really just bring sexy back to the renewable
energy industry? Maybe just a little, for now.
Disclosure:I am currently long GEX.
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