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Quick Investor Guide To Alternative Energy ETFs

February 17th, 2014

ETFsPresident Obama’s fresh environmental plan has proved to be beneficial for renewable energy stocks. Alternative energy is the most happening thing in the energy sector now in the wake of widespread concerns over carbon emission, climate change and other pressing environmental issues.

A major growth area in the renewable space is solar energy. Following a listless 2011, the solar industry rallied in 2013. The U.S. Energy Information Administration (EIA) estimates that U.S solar demand increased more than 32% in 2013. For 2014, the EIA projects that

U.S. solar energy consumption will boom by roughly 35%. The expected increase in demand is likely to fuel top-line growth at the solar manufacturers. It is likely that for the first time in more than 15 years the U.S. has installed more solar capacity than the world leader Germany.


While U.S. and China have been playing a big role in recent years in driving the industry, other nations are also pushing hard to have a home-grown solar generation capacity as a remedial measure to solve their electricity crisis. The latest to join this list is Asia’s third largest economy, India. The country recently planned for a $4.4 billion solar plant which could perhaps be the world’s largest.

Again, in Japan, companies like First Solar Inc. (FSLR) are investing substantially to install emission-free renewable set-ups. The country is expected to become the second largest market for solar products after China. This comes on the heels of Japan deactivating all its nuclear reactors after the Fukushima nuclear disaster. First Solar – the largest U.S. solar company – is teaming up with Japanese counterparts to develop, build and operate solar power plants.

Among the other alternative energies, the U.S. wind industry is now gradually picking up. EIA expects wind capacity to expand 8.8% in 2014 to about 66 gigawatt (GW) and 14.6% to over 75 GW at the end of 2015. Electricity generation from wind is projected to increase by 2.2% this year and 11.4% in 2015, contributing over 5% of total electricity generation by the end of 2015 (Read:Alternative Energy Stock Outlook – Feb 2014)

Again, hydropower is considered as the leading renewable energy source in the U.S. With the emergence of new technologies, like marine and hydrokinetics, this industry is likely to continue to generate vast amounts of sustainable energy throughout the country.

ETFs to Tap the Sector

For investors seeking to play this trend in ETF form, the following series of alternative energy ETFs could make for interesting picks.

WilderHill Clean Energy Portfolio (NYSEARCA:PBW)

Launched in March 2005, PBW tracks the WilderHill Clean Energy Index and manages an asset base of $211.9 million which it invests in a portfolio of 53 stocks.

It is well diversified across various sectors. Information Technology takes the top spot with a 44.01% allocation followed by Industrials (23.24%) and Energy (9.55%).

The fund’s top 10 holdings jointly contribute 26.43% towards the fund. The product invests almost 90% in companies related to cleaner energy and it charges a hefty 70 basis points in fees.

PBW has rewarded investors with solid returns of 43.66% over the past one year.

Market Vectors Global Alternative Energy ETF (NYSEARCA:GEX)

Launched in May 2007, GEX tracks the Ardour Global Index, focusing on companies that are primarily engaged in the business of alternative energy comprising solar power, bio energy, wind power, hydro power and geothermal energy.

The fund holds about 31 stocks in its pocket and has assets under management of $96.2 million and charges an expense ratio of 62 basis points annually. The fund is liquid with 12,483 shares changing hands in a day on an average.

Apart from robust holdings in the U.S., the product offers solid exposure to Europe and some Asian countries. Again, Industrials, Information Technology and Utilities take the top three spots, adding 86.1% in sector holdings. Further, the fund’s top 10 holdings jointly contribute 64.89% to the fund. Tesla Motors Inc. (TSLA), Eaton Corp. (ETN) and Vestas Wind Systems A/S are the top three holdings, with 28.71% of asset allocation in total.

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