Clean Energy ETFs Face Off

 by Jason Neault

Global energy demand is on the rise and nations, businesses and individuals are looking more than ever for new renewable, clean sources of energy. This new surge of interest in the clean, renewable energy space has many people looking to the sun, the wind, the ocean, ethanol & bio fuels, and other more obscure technologies. Investors are pouring money into new projects such as wind farms, solar farms, and other breakthrough technologies. Even T. Boone Pickens, a lifetime oil man, is getting behind the revolution.

Currently there are two ETFs that dominate the clean alternative energy sector, PowerShares WilderHill Clean Energy Portfolio (PBW) and Van Eck's Market Vectors Global Alternative Energy ETF (GEX).

These two funds appear to be quite similar, and in many aspects they are. However, a closer look reveals many of their differences in structure, size, and value.The first of these ETFs to hit the market was PowerShares' PBW, which tracks the WilderHill Clean Energy Index. This index is comprised of 54 securities covering small (58%), mid (26%), and large cap (16%) companies. Roughly 2 years after the launch of PBW, Van Eck's GEX hit the market, which tracks the Ardour Global Index. This index is comprised of 30 securities covering small (11%), mid (40%), and large cap (49%) companies.

When looking at the top five holdings of the two funds as a percentage of the total fund, PBW's top five make up 15%, whereas GEX's top five make up a much larger 45% of the fund.

Take a closer look at the individual holdings, and you will see just how different these two funds are. The older PBW has some very small companies, such as ReneSola (SOL) and EMCORE (EMKR) as its top solar holdings, compared to First Solar (FSLR), Q-Cells, and Suntech Power (STP) in GEX. Below is a comparison of the top 10 holdings of each fund.

On a value comparison, PBW's average trailing P/E ratio is around 38, while GEX is sporting a 47 trailing P/E. Both of these ETFs are good investments for direct exposure to the wind and solar energy sector, however Van Eck's GEX seems to be the more appropriately weighted of the two, despite its lack of diversification. If the underlying index that PBW tracks were to reshuffle to a more relevant weighting, it would deserve a second look.

Disclosure: none

Comments

[Seeker64:]

What about QCLN from First Trust? How does it compare to the other two?

2008 Aug 14 10:17 AM

[Etf Planet:]

Hey Seeker, QCLN is also a good one, its more closely related to GEX than PBW. Also its outperformed PBW, but underperformed GEX in the past year. Its a little lesser known, and has lighter volume, but definately a good fund to consider
www.ftportfolios.com/c...

2008 Aug 14 10:28 AM

[jimsep:]

Why is GEX more appropriately weighted, in your opinion? Is bigger better?

2008 Aug 14 10:29 AM

[Allen Fuller:]

Although I like renewable energy, these P/E ratios are a bit scary... I just hope the underlying companies can start making better profits.

2008 Aug 14 04:28 PM

[Alan Young:]

What, is that all??
I switched from PBW to GEX after doing some homework and learning that PBW has a substantial weight in biofuels (ethanol).
If you're going to publish an article about it, you could at least go that far... and maybe compare performance, currency exposure, and market caps?

2008 Aug 14 09:51 PM