Not All Alternative Energy ETFs Were Created Alike

alternative-energyA few months ago, I conducted analyses of the wind and solar power ETFs. I’ve recently turned my attention to the general alternative energy ETFs, or those that span several sectors.

The general alt energy ETFs fall into two categories: 1) US Only and 2) Global. The US Only ETFs are the First Trust NASDAQ Clean Edge US Liquid (QCLN) and the PowerShares Clean Energy (PBW). The Global ETFs are the iShares S&P Global Clean Energy Index ETF (ICLN), the PowerShares Global Clean Energy Portfolio (PBD) and the Van Eck Global Alternative Energy Fund (GEX).  

The chart below shows 1-year’s worth of weekly returns for the five ETFs. You can click on the chart for an expanded view if you are having difficulty reading it.

The table below provides a few key statistics on the ETFs.

Ticker May 22 Price ($) Expense Ratio (%) 1-yr Return (%) St Dev of Returns (%) 6-mth Return (%) Holdings (# of stocks)
PBD 14.55 0.70 (49.3) 4.2 25.6 77
QCLN 12.75 0.60 (52.5) 4.3 19.7 78
GEX 25.00 0.65 (53.9) 5.1 18.7 28
ICLN 22.96 0.48 (56.5) 5.2 17.9 37
PBW 9.19 0.70 (58.6) 4.4 8.8 80

As the data in the table demonstrates, there is more to picking the right alt energy ETF than simply looking at the expense ratio. PBD, at a hefty 0.7%, has outperformed its peer group with lower volatility over the past year.

For example, $1,000 invested invested into PBD six months ago would have been worth $1,256 pre-expense on May 22, 2009, and $1,249 post-expense. The same $1,000 invested in ICLN, the ‘cheapest’ of the group, would have been worth, respectively, $1,179 and $1,174 on May 22. Moreover, PBD would have acheived this performance with a lower standard deviation – i.e. volatility – than ICLN.

While one would need to test for statistical significance before making any hard conclusions about outperformance, these results certainly suggest that, when it comes to picking an alt energy ETF, one must dig deeper than simply the expense ratio, as strong outperformance in the long run can more than make up for a few basis points in extra cost.

Full Story:

Leave a Reply

Your email address will not be published. Required fields are marked *