Revisiting PowerShares' Clean Energy ETF As It Faces All-Time Highs

Nick Perry (Schaeffer's Investment Research) submits: I touched on the PowerShares WilderHill Clean Energy Fund (PBW) back in June but thought the fund was worth revisiting, given its performance this week. In that discussion of the ETF, we saw it had ticked to a new annual high and I said that with oil prices remaining a headline mainstay, it might be worthwhile to check into the PBW. Below is the weekly chart.

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As has been the case with the entire market, the PBW has been quite volatile during the past weeks. The fund eventually dropped from its annual high but then quickly bounced back this week to challenge its all-time high. The red arc highlights the bottoming pattern that formed after the plunge from the early-2006 peak. I have seen this pattern play out after a number of hard sell-offs. You have the initial drop followed by a basing period of sideways movement that eventually starts to "roll up." The big test now comes as the PBW faces that all-time peak near 24.

In my June commentary I listed the members of the PBW and we saw a fairly even distribution. The diverse weighting is still true but the composition of the top fund holdings has changed a bit. Here are the top 10 stocks, according the PowerShares site.

If you pull up the daily charts of these stocks you will some fairly volatile action. I point this out because it highlights 1 of the advantages of sector ETFs - the diversification that comes with a basket of stocks. In this case especially, it can be difficult to stay abreast of what all the individual companies are doing so an ETF gives you a good way to gain exposure without having to pick the best stock.