6 Energy ETFs: Clean vs. Non-Clean

While I have not mentioned it much on the blog, one of my favorite sectors to invest in is the energy sector. When it comes to energy ETFs, the 800 pound gorilla is XLE, the energy select sector SPDR that trades over 20 million shares on a typical day. XLE’s holdings are heavily tilted toward the major integrated oil companies, with Exxon Mobil (XOM) and Chevron (CVX) accounting for slightly more the 1/3 of the ETFs holdings, followed by ConocoPhillips (COP), Schlumberger (SLB), Occidental Petroleum (OXY), etc.

With cap and trade legislation passing the House over the weekend, investing in the energy space is getting even more interesting. XLE was up Monday morning, as were the popular oil services ETF, OIH (the top five holdings favor drillers and include RIG, SLB, DO, BHI and NE) and the exploration and production ETF, XOP (top five holdings are XEC, PXD, EAC, INT and HK.)

There are a variety of ETFs out there in the clean/green space. Perhaps the best known of these and certainly the most popular is PowerShares WilderHill Clean Energy (PBW), whose largest holdings include a healthy dose of solar companies (top five holdings are FSYS, VLNC, SOLR, ESLR, SOL.) Among the more interesting alternatives is a sibling ETF, PowerShares WilderHill Progressive Energy (PUW), which places more emphasis on energy efficiency and nuclear power and has a list of top holdings which includes MX.TO, ES, PX, USU and CCO.TO. For a solar-only ETF play, Claymore/MAC Global Solar Energy (TAN) is an excellent bet. Note that many of the holdings of TAN are not traded on U.S. exchanges. The current top five holdings are MBTN.SW, FSLR, S92.BE, CTN.DU and SWV.BE. Also in the top ten holdings are two Chinese solar companies whose ADRs are available in the U.S.: STP and TSL.

In the chart below, I have highlighted my favorite all-purpose clean energy ETF, PBW and have included a ratio of PBW to XLE in order to get a sense of the relative performance of clean energy with respect to the broad energy sector. While PBW has pulled back with the broader market during the past three weeks, it has continued to perform strongly against the broad energy sector ETF. As the ratio chart hints, pairs trades involving clean energy ETFs such as PBW, PUW and TAN vs. XLE, XOP and OIH are one way to play the Washington energy legislation game going forward.

[source: StockCharts]

Disclosure: Long OIH, DO, INT and TSL at time of writing.

Comments

[Ryan Vanzo:]

So you would recommend PBW as the best ETF to play clean energy? In your view, how is it's liquidity and diversification?

Thanks,
Ryan Vanzo

Jun 30 05:02 PM

[Fred Swartz:]

Nice, and thanks for the pair trading idea.

Jun 30 05:02 PM

[HerrHansa:]

You might want to compare PBW and GEX, just to see another way to play these. I still think it is a bit early for alternative energy, though if you are building long positions a few quarters out, this next quarter could provide some good value plays. One thing to watch and research is the underlying holdings in these ETFs, especially those with foreign holdings that lack ADRs.

Currently I am mostly invested in oil and natural gas related companies. The one position I do hold in alternative energy is Evergreen Solar (ESLR), which was mentioned in this article. I invested because I liked the unique technology and approach of the company, though I consider this a ground floor long term strategy. So far it has barely moved, though I am expecting more in Q4 2009 and Q1 2010, when more of these projects in alternative energy start moving globally.

Jul 01 03:28 PM

[HerrHansa:]

You might want to compare PBW and GEX, just to see another way to play these. I still think it is a bit early for alternative energy, though if you are building long positions a few quarters out, this next quarter could provide some good value plays. One thing to watch and research is the underlying holdings in these ETFs, especially those with foreign holdings that lack ADRs.

Currently I am mostly invested in oil and natural gas related companies. The one position I do hold in alternative energy is Evergreen Solar (ESLR), which was mentioned in this article. I invested because I liked the unique technology and approach of the company, though I consider this a ground floor long term strategy. So far it has barely moved, though I am expecting more in Q4 2009 and Q1 2010, when more of these projects in alternative energy start moving globally.

Jul 01 03:37 PM