Alternate Ways to Invest in Clean Energy

For new investors looking to green their portfolios with clean energy, the first thought is usually mutual funds.  The following three are available in North America:

 

Mutual Funds	Expenses
New Alternatives Fund (NALFX)	0.95% + Sales load
Guinness Atkinson Alternative Energy Fund  (GAAEX)	1.64%
Calvert Global Alternative Energy Fund (CGAEX)	1.85%

Each of these funds has expenses which would be considered high by industry standards, although they have all dropped noticeably since I covered mutual funds in 2007.  High expense ratios are a considerable drag on long term performance.  To avoid high expense ratios, knowledgeable investors usually turn to index mutual funds and exchange traded funds (ETFs). 

There are no clean energy index mutual funds currently available, but recent years have seen a rapid proliferation of new exchange traded funds.  At current count, there are four ETFs focusing on clean energy,  as well as three sub-sector ETFs for the Solar and Wind sub-sectors.

 

 

Exchange Traded Funds (ETFs)	Expense ratio	Comments
Powershares Wilderhill Clean Energy Portfolio (PBW)	0.60%	The oldest ETF in the sector, this fund holds only US-traded companies.
Powershares Global Clean Energy (PBD)	0.75%	A better diversification alternative than PBW
Van Eck Global Alternative Energy Fund (GEX)	0.65%	This is my current favorite for a single investment in Clean Energy, due to the combination of a low expense ratio and a global focus.
First Trust NASDAQ US Liquid (QCLN)	0.60%	The advantage of the low expense ratio is offset by the disadvantage of a US-only focus.
Sub-sector ETFs	Expense ratio	Comments
Claymore/Mac Global Solar Index ETF (TAN)	0.65%	Global Solar companies
Market Vectors/Van Eck Global Solar Energy ETF (KWT)	0.65%	Global Solar companies.
First Trust Global Wind Energy Index (FAN)	0.60%	Global Wind Power companies.

I recently wrote in depth about the Solar and Wind ETFs, including how I might (and might not) use them as part of a larger portfolio.  For people looking for a single investment in clean energy, I prefer the diversification of the global ETFs.  Many leading renewable energy companies (especially in the wind sector) are not traded on North American exchanges.  Hence, for a person wanting a single investment in the sector, the Van Eck Global Alternative ETF (GEX) is currently the best option, followed closely by Powershares’ Global Clean Energy fund (PBD), because of its slightly higher expense ratio. 

DISCLOSURE: The Guinness Atkinson Alternative Energy fund is an advertiser on 

Alternative Energy Stocks

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Comments

[Cicero:]

You like PBD over PBW because it is more diversified (~80 v. ~50 stocks; ~two-thirds v. ~ one-fourth foreign). You like GEX even better because of its global focus and lower expenses. Yet PBD seems considerably more diverse than GEX. Both hold about two-thirds foreign stock, but PBD has ~80 stocks v. only ~30 stocks for GEX, and PBD is less diversified in terms of industry. Am I missing something?

2008 Jul 21 08:24 AM

[Alan Young:]

Here is another mutual fund, not to be overlooked: ALTEX.

2008 Jul 21 11:32 AM

[rvantass:]

If we are to get up to 20% by 2020, we're going to have to get cracking. The same Department of Energy says that in 2007 (preliminary figure) wind provided 31/100 of ONE percent of our energy consumption, up from 26/100 of ONE percent the previous year. That is truly a minuscule amount. The best you can say for it is that the field is wide open!

2008 Jul 23 05:39 PM