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Alternative Energy ETFs
As bad as the overall market has been,
alternative energy stocks have done even worse. Triggered by falling
crude oil prices, which made the switch to alternative energy seem less
urgent, most are down more than 50% over the
past 12-months.
But President Obama has made reducing our
dependence on foreign oil a top priority. Once the government starts
doling out the $15 billion earmarked for alternative energy in the
stimulus package, these stocks could start moving up again. Considering
the fall they’ve taken, there’s plenty of upside potential.
ETFs: Best Approach
Exchange-traded funds (ETFs) are a more practical way to invest
in alternative energy than picking individual stocks. ETFs are similar
to index mutual funds, except they trade like stocks. ETFs track a
particular market sector or industry index. Buying an index gives you
better diversification than picking individual stocks. ETFs are
especially appropriate here because many alternative energy firms are
headquartered in foreign countries and are not readily available to U.S.
investors. However, ETFs routinely hold foreign stocks.
I used Morningstar’s ETF Screener to gather
a list of alternative energy funds. From Morningstar’s home page (www.morningstar.com),
select
ETFs,
and then
ETF Screener. Then select Natural
Resources for Morningstar Category, and pick the funds in that group
specializing in alternative energy.
You can find ETFs that
cover the overall alternative energy industry, or that specialize in
particular segments. Here are
the ETFs that looked interesting to me.
Overall Industry
PowerShares WilderHill Clean Energy (PBW) tracks 51 small- to
mid-sized companies involved in the renewable and/or alternative energy
business. Although its biggest holding, solar module maker Trina Solar,
is based in China, U.S.-based firms comprise 75% of the portfolio. After
Trina, its biggest holdings are LCD lighting systems maker Cree, and
solar cell material maker Energy Conversion Devices. Some of its
holdings, such as electric utility Portland General Electric or
semiconductor maker International Rectifier are only partially involved
in alternative energy. The fund has dropped 68% over the past 12-months.
PowerShares Global Clean Energy (PBD)
tracks 83 mostly mid-sized stocks that focus on the generation and use
of renewable energy. With 70% of its holdings based outside the U.S.,
this fund is more globally focused and includes a higher percentage of
wind generating stocks than the PS WilderHill fund. Biggest holdings are
EDF Energies Nouvelles, a French developer of solar-powered electrical
plants, and EDP Renovaveis, a Portugal-based operator of wind power
plants operating in many countries, including the U.S. Its shares have
dropped 61% over the past 12-months.
Market Vectors Global Alternative Energy
(GEX), with 68% of its portfolio based outside the U.S. but tracking
only 30 stocks, is similar to, but less diversified than PS Global. Its
biggest holdings are Denmark-based Vestas Wind Systems, U.S.-based solar
panel maker First Solar, and Spain-based wind power generator Iberdrola
Energias, MV Global’s shares have lost 62% over the past 12-months.
Solar Energy
If you think that solar energy has the most potential, consider
Market Vectors Solar Energy (KWT). It tracks an index of stocks
engaged various aspects of solar power production. This tightly-focused
fund tracks only 29 stocks, roughly two-thirds of them outside the U.S.
Biggest holdings include German solar system maker SolarWorld, and
U.S.-based solar system makers First Solar and SunPower. Despite having
two of the top three, U.S.-based stocks account for only 36% of the
fund’s holdings. Reflecting the shellacking that solar industry stocks
have suffered, this fund’s share are down 74% since its July 2008
inception.
Wind Energy
If you want to focus on wind energy, PowerShares Global Wind
Energy (PWND) tracks 34 stocks, mostly mid-sized firms, involved in
producing or using wind-powered generating equipment. Spain is home base
for 37% of the holdings. Only 10% are headquartered in the U.S. Its
biggest holding, Spain-based alternative power utility Iberdrola
Energias operates in a variety of countries, including the U.S. This
fund has dropped 57% since its July 2008 inception.
Nuclear Energy
If you see opportunity in nuclear energy, PowerShares Global
Nuclear Energy (PKN) tracks 62 stocks operating in that industry.
However, for many, including Emerson Electric, Hitachi and General
Electric, nuclear energy accounts for only a small percentage of their
business. French nuclear engineering firm Areva is its biggest holding.
Toshiba, which recently won a contract to build two nuclear power plants
in the U.S., is second. Only 35% of the fund’s holdings are based in the
U.S. The fund is down 51% since its July 2008 inception.
Patience Required
It will take some time for government to begin dispensing
stimulus bucks. So don’t expect alternative energy stocks to take off
next week. Patience is required.
published 3/1/09 |
