Van Eck Launches Alternative Energy ETF: A Peer Comparison

Van Eck has joined the race to capitalize on growing interest in the alternative energy space. The company, which has its roots in commodities management, launched the Market Vectors – Global Alternative Energy ETF (NYSE: GEX) onto the New York Stock Exchange on Tuesday, May 9. It is Van Eck’s sixth exchange-traded fund.

The new ETF tracks the performance of the Ardour Global Alternative Energy Index (Extra Liquid), a benchmark of 30 companies that derive at least half of their revenues from alternative energy. The fund emphasizes large-cap exposure as much as possible: companies are chosen from a field of 250 candidates based on the highest daily trading volume and the largest float-adjusted market cap. Large-caps currently make up 30.1 percent of the fund, which is double the large-cap exposure of competing ETFs. (As with any emerging technology, the alternative energy space has a large number of small-cap players.)

The fund is also unique in its global tilt: currently, Europe represents 47.1 percent of the fund, the U.S. represents 41.8 percent of the fund, and China and Japan represent the remainder (11.1 percent). Other ETFs on the market today focus more on U.S. names. That's an interesting distinction, as Europe and Asia are ahead of the U.S. in many areas of alternative energy development.

GEX charges 65 basis points (0.65 percent) in expenses.

The Competitors
Unlike Van Eck’s recently launched Russia ETF, GEX enters a crowded market, with four established competitors in the field. Its primary distinguishing characteristics are its large-cap focus and its global exposure.

The granddaddy of alternative energy ETFs is the PowerShares WilderHill Clean Energy Portfolio (AMEX: PBW). PBW holds U.S.-listed companies that produce green or renewable energy and related technologies. The fund is a small-cap fund, with a 69 percent weight in small-cap stocks and just 7 percent exposure to large caps. It is dominated by Information Technology companies (41 percent). The ETF charges 0.60 percent, and listed in March 2005. Last year, PBW lost 11.15 percent as the air came out of the alternative energy space. According to backtested data, the underlying index has a 5-year annualized performance of 2.93 percent.

The PowerShares WilderHill Progressive Energy Portfolio (AMEX: PUW) takes a different tact: it focuses on companies providing “transitional energy bridge technologies.” In other words, it looks at companies that are improving our use of fossil fuels, rather than those that make the wholesale jump to new energy platforms. (Think hybrid cars more than hydrogen.) The fund launched in October 2006 and charges 0.60 percent. It is dominated by small-cap exposure, at 49 percent of the fund, with 15 percent exposure to large caps. The fund, however, does have relatively diversified sector exposure: the largest single sector, Industrials, is just 28 percent of the fund. PUW has posted the best backtested performance in the group: the underlying index rose 2.84 percent last year, and has 5-year annualized backtested returns of 12.79 percent.

The PowerShares Cleantech Portfolio (AMEX: PZD) holds companies that help existing industries operate more efficiently. It charges 0.60 percent in expenses. The fund has 63 percent exposure to small caps and just 7 percent exposure to large caps. PZD is dominated by Industrials, which have a 58 percent weight in the fund. The underlying index fell 9.38 percent last year, but has posted a 9.11 percent annualized gain over the past five years.

The First Trust Nasdaq Clean Edge (NDAQ: QCLN) ETF, which launched in February, charges 0.60 percent in expenses and invests in “emerging clean-energy technologies” like solar photovoltaics and biofeuls. The fund is evenly split between Technology (43 percent) and Industrials (41 percent) exposure. It is almost entirely composed of small and mid-cap names, with nominal exposure to large caps.