After being stressed over the past few years, the renewable energy sector has fired on all cylinders and is the major gainer this year, clearly outpacing the broad market. This is largely thanks to a number of growth stocks in the space, which was backed by the surging stock market, favorable green energy trends and Obama’s ‘Climate Change Action Plan’.
Obama Plan Proves Beneficial
In June, President Obama unveiled a broad environmental plan in order to curb carbon pollution from coal-fired power plants and make cleaner forms of American-made energy. The plan hinges on three pillars – cutting carbon emissions, preparing for the impact of climate change, and leading international efforts on the subject.
The strategy would definitely benefit a variety of clean energy firms, as it would improve energy efficiency across the board while reducing other non-carbon emissions. The surge can already be seen in many renewable energy stocks like First Solar, Inc. (NASDAQ:FSLR) and SolarCity Corp (NASDAQ:SCTY), though trading has been slightly choppy of late due to mixed earnings and disappointing guidance by many firms.
Solid Industry Outlook
The depletion of fossil fuel reserves, higher oil and gas prices, as well as more efficient alternative energy applications has made clean power more viable, adding optimism into the sector. The demand for renewable energy, in particular wind and solar, is growing by leaps and bounds for electricity generation in the U.S.
Currently, clean energy accounts for nearly 16% of U.S. electricity generation and is expected to increase to 33% over the next three years, as per the Energy Information Administration (EIA). This is especially true given that global warming and high fuel emissions issues have resulted in rising popularity of clean energy sources (read: 5 Clean Energy ETFs Leading the Sector’s Surge).
The new and advanced technologies are able to provide clean environment and have reduced dependence on fossil fuels, coal or other energy resources, suggesting a bullish outlook on the clean energy stocks. Moreover, the EIA projects clean energy production to grow at a faster rate through 2040. In fact, solar, wind and geothermal production will likely double over the next 25 years.
Given the bright outlook and the firmer oil prices, the trend of a bull run in the space is likely to continue into 2014. As such, investors seeking to ride out this booming trend want to tap the space in the ETF form.
For those investors, we have highlighted three ETFs that could be worth a look if America continues to embrace green technology, and energy efficiency.
First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN)
This fund tracks the Nasdaq Clean Edge Green Energy Index and managed assets worth $90.7 million. It charges 60 bps in fees per year while volume is light suggesting a wide bid/ask spread.
In total, the product holds 43 securities in its basket with largest allocations to Linear Technology (LLTC), FSLR and ITC Holdings (ITC). These firms combined make up for 23% of total assets. From a sector look, technology firms dominate this ETF, accounting for nearly two-fifths of the assets while oil & gas, and industrials round out the next two spots.
QCLN is up 83.6% in the year-to-date time frame and it has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook.