Solar. Wind. Fuel cells. Biofuels. Hydropower.
There are benefits and drawbacks to each alternative energy source. On the most obvious level, one needs sun to produce solar energy, wind to produce wind power, and, well, you get idea. So, there are geographic and weather considerations that are key to choosing an alternative energy source for a particular area.
Then, of course, there are technological considerations — not only among the various types of energy sources, but also within them. Will wind breeze past solar in cost-effectiveness? What specific solar technology will shine while others eventually fade into the horizon?
And enter the political, social and aesthetic considerations, which often go hand-in-hand. Many seaside homeowners and vacationers may spew hot air about wind power being our savior from dependence on foreign oil and our earth’s savior from ourselves until the next big wind farm is proposed in the ocean that is our collective backyard. The not-in-my-backyard! (NIMBY!) factor. (Michael d’ Estries’ post of August 30 discusses NIMBY! in reference to solar energy.)
The point is that there will likely be several winners over the long-term in the clean energy arena due, in part, to these factors. Additionally, some forms of alternative energy will likely be better suited to some specific uses while others to other uses.
OK, so it seems to make sense to invest in several types of alternative energy. Now there’s the decision as to what specific publicly-traded companies to invest in? Hit More to continue>>
As a start, one might consider an alternative energy exchange-traded fund (ETF). ETFs are similar to mutual funds in that they hold a portfolio of stocks; a main difference is that ETFs, unlike mutual funds, trade on stock exchanges just as individual stocks do. Alternative energy ETFs are relatively new – there were only about 5 of them at mid-year 2007, though others are in the works.
Here’s a run-down on three of the larger ones by market capitalization (shares outstanding x price per share):
- PowerShares WilderHill Clean Energy (ticker symbol PBW) — This is, by far, the most established (began trading in early 2005) as well as the largest (market cap of almost $1 billion). It trades on the American Stock Exchange. The fund tracks the WilderHill Clean Energy index, which is comprised of 40 companies involved in alternative energy.
- Market Vectors Global Alternative Energy ETF (GEX) — The fund tracks the Ardour Global index, which is comprised of stocks in 30 publicly traded companies engaged in alternative energy production. It started trading on the New York Stock Exchange on May 9, 2007.
- PowerShares Progressive Energy Portfolio (PUW)– This fund, also based on the WilderHill index, includes companies with products that lessen the environmental impact of existing fuel sources and improve the efficiency of their use. It began trading in October 2006 and has a market cap of $30M.
The first two are “pure plays” — they invest in alternative energy companies, while the third invests in companies that are making traditional or unclean energy less unclean.
Check out the 3-month chart above – green energy has been in the green! The two pure plays have considerably outperformed PUW and the market in general (as proxied by the S&P 500 index, “GSPC” in black in chart) over the 3-month period ending August 31, 2007. A quick look shows a roughly 10-11% spread between the pure plays and the market. Granted, this is a relatively short period. (I didn’t show a chart for a longer period of time — such as a YTD 2007 or a 6-month — as not all the funds have been around for those periods of time.) It’s worth noting that PBW has considerably outperformed the market over 2007 as well as over the past 6-month period. PUW, as one might expect, has pretty much tracked the market, albeit slightly outperforming it.
This is by no means a recommendation to buy one of the ETFs discussed here. It is meant to suggest one avenue someone interesting in investing in alternative energy might further explore.
More on clean energy ETFs and individual stocks in future posts.
Disclosure: I don’t own any of the ETFs discussed here.
