While broad markets have had a pretty good 2013, there have been a few sectors that have easily led the way higher. In particular, the clean energy world has had a banner year, with broad gains seen in a number of stocks in the sector.
This space has been assisted by a trend towards growth stocks by a variety of investors as a risk on trade has gripped broad markets as of late. Furthermore, high oil prices and more efficient alternative energy applications have made clean power more viable, adding even more interest in the sector (read 4 Unbeatable ETF Strategies for Q4).
Thanks to these trends, clean energy ETFs have been star performers, pretty much across the board. However, a few have really taken off in the past few months, and we have highlighted the best performers in this space for those looking to ride the strong momentum wave in the clean energy ETF world a little longer:
Van Eck Global Alternative Energy ETF (GEX)
This ETF follows the Ardour Global Index, giving investors exposure to about 30 companies across the globe that are engaged in some aspect of the clean energy world. The fund charges investors 62 basis points a year in fees, while volume is a little light, suggesting that total costs may be a bit higher.
GEX is heavy in industrials, as these represent 40% of the fund, though technology (24.5%), consumer discretionary (16.2%), and utilities (14.2%) all receive big chunks as well. In terms of countries, the U.S. dominates at just over half the portfolio, while individual holdings are led by Tesla (TSLA), Eaton Corp (ETN), and Cree (CREE).
For performance, the ETF has added about 15.2% in the past three months, while it has skyrocketed by over 72% in the trailing one year time frame.
PowerShares Global Clean Energy ETF (PBD)
This ETF tracks the WilderHill New Energy Global Innovation Index, charging investors 75 basis points a year in fees for the exposure. In total, the ETF has about 100 companies in its basket, while assets under management come in at just over $75 million.
The fund focuses on companies that are engaged in greener and renewable sources of energy, or firms that focus on technologies that facilitate cleaner energy. Top sectors include technology (36%) and industrials (29.5%), while assets are well spread out; no single company makes up more than 3% of the total fund.
There is a well spread out profile from a country look too, as the U.S. takes the top spot at 37.4%, while China (12.9%) and Denmark (5.2%) round out the top three (see all the Alternative Energy ETFs).
In terms of performance, PBD has added 15.7% in the past three months, while it has added just over 48% in the past one year time frame.
First Trust ISE Global Wind Energy Index Fund (FAN)
For a concentrated play on the wind power industry, FAN may be an excellent choice, tracking the ISE Global Wind Energy Index. This benchmark provides exposure to roughly 50 companies, charging investors 60 basis points a year in fees.
The ETF focuses on companies that are exclusively positioned in the wind power industry, though it also includes firms that are engaged in the space but not entirely dependent on it for revenues. This results in a very small cap heavy fund, and one that has significant exposure in European and Asian markets, leaving just 11% for the U.S.
FAN has also surged in the past three months, adding 22.2% in the time period, while it has soared by over 51% in the trailing one year time frame.
Van Eck Solar Power ETF (KWT)
If solar is more of your play, KWT may be a better choice as it targets the Market Vectors Global Solar Energy Index. This benchmark holds just over 30 stocks in its basket, charging 65 basis points a year in fees, though total costs may be higher thanks to a low volume level.
The fund is a bit concentrated in its top holdings though no single company makes up more than 8% of assets. Country exposure is skewed towards Asia, while there is a definite focus on small and mid cap stocks for this ETF (read Solar ETF Investing 101).
In terms of performance, KWT has had a banner 3 month time frame, gaining just over 24%, while its one year return stands at just over 59.5%.
Guggenheim Solar ETF (TAN)
TAN is easily the most popular targeted alternative energy ETF, as it has more than $200 million in assets and average daily volume exceeding 220,000 shares. The fund follows the MAC Global Solar Energy Index—with roughly 30 stocks in the basket—focusing on companies that produce solar power equipment and products.
The fund does a great job of spreading out assets, as no single company makes up more than 6% of assets. Country holdings leave 28% in the U.S., while ‘greater China’ (China + Hong Kong in this case) accounts for 40% of the assets. Once again, there is a small cap focus on this ETF, with micro caps arguably taking up over half of the portfolio.
TAN has been a true star performer, outclassing the rest of the products on the list lately. It has seen a 33% gain in the past three months, while its one year return stands at 88.8%.
It has been a great year for clean energy ETFs so far, as a number of factors have combined to produce bullish conditions for the space. And with firm oil prices and technological advances, there is reason to believe that this trend may continue into the future (see 3 ETFs to Buy for Obama’s Climate Change Plan).
It is important to remember though, that we have been here before in the clean energy space. For years, if not decades, investors thought that the time for investing in alternative fuel sources was just around the corner. Each time, however, big gains were followed by even bigger losses, dulling the appeal of the space for a time.
It remains to be seen if this latest burst is just another continuation of the clean energy trend, or if the space is finally starting to break out. Recent moves in the sector have been encouraging though, and if these trends can continue, then there are clearly more gains that can be had for risk-tolerant investors looking for a new play in the space.
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