Sweta Killa: Clean or renewable energy stocks have seen choppy trade since a couple of months as investors are fleeing high growth and high beta stocks on valuation concerns and profit-taking activity.
While the sluggish trend that stemmed from the broad sell-off could continue in the near term, the long-term outlook seems bright. This is especially true as global warming and high fuel emission issues are leading to rising popularity of clean energy sources.
The demand for renewable energy, in particular solar and wind, is rapidly growing for electricity generation in the U.S. As per the Energy Information Administration (EIA), renewable electricity generation in the U.S. would grow by an average 1.9% per year until 2040 and total of 69% over 28 years (from 2012–2040).
The alternative energy sector is seeing a global boom led by China, Europe, the U.S. and Japan, and might outpace the rising shale oil and gas business in the coming years. The depletion of fossil fuel reserves, higher oil and gas prices, new and advanced technologies, and more efficient alternative energy applications have made clean power more viable, injecting optimism into the sector.
Moreover, the sector is well placed in the top 13% as per the Zacks Industry Rank, suggesting bullish fundamentals for the green stocks in the coming months.
Investors seeking to ride out this surging trend in the space could tap the beaten down stock prices in the form of ETFs given that America continues its green energy efficiency. Below, we have highlighted three ETFs that are not restricted to one source of energy but provide diversified exposure to various green energy sources (see: all the Alternative Energy ETFs here):
PowerShares WilderHill Clean Energy Portfolio Fund (NYSEARCA:PBW)
This product follows the WilderHill Clean Energy Index and targets the stocks, which focus on greener and generally renewable sources of energy, as well as technologies that facilitate cleaner energy. The fund has amassed $205.3 million in its asset base and sees solid volume of more than 446,000 shares a day. Expense ratio came in at 0.70%.
The ETF holds about 56 stocks in its basket and is pretty well spread out across various securities, as each make up for less than 3% of total assets. Gentherm (THRM), Polypore International (PPO) and Maxwell Technologies (MXWL) are the top three elements in the basket. From a sector look, the focus is on information technology firms (42%), but industrials and utilities also receive double-digit allocations.
PBW was down about 4.8% over the past one month.