How to Invest in Alternative Energy with ETFs

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Oil prices are once again going higher and everyone is mad about it. The talk has turned back to alternative energy and the funding for alternative energy companies. There are numerous industries in alternative energy including wind, solar, biofuels made from algae and ethanol made from cheaper products like switch grass. You can invest in alternative energy with ETFs. You can invest in only wind or solar or the entire alternative energy sector.

The US government continues to give tax breaks and loans to alternative energy companies as the United States tries to become less dependant on oil and cut back on pollution and carbon emissions. Alternative energy is just about any energy that doesn’t require oil or natural gas which includes:

  • Wind power
  • Solar power
  • Bio-fuels and power from algae
  • Ethanol products from corn and switch grass
  • Nuclear energy is also considered an alternative energy, but the Fukushima disaster in Japan after the earthquake and tsunami has changed the thinking about this.

Major oil companies like Exxon have invested millions of dollars buying small companies and into research of these alternative energy products, including bio-fuels made from algae. You can also invest in these alternative energy companies. It can be hard to figure out which small or large company will find the right solutions and make it big in the stock market by yourself. By investing in alternative energy ETFs, you can invest in a basket of these companies.

You can invest in a single type of alternative energy you believe in or you can spread it out over all of the different possible alternative energy companies with ETFs. Most if not all of these alternative energy ETFs invest in companies around the world, not only in the United States and this can give you good exposure to international companies involved with alternative energy.

This is a list of good alternative energy ETFs and what companies they mainly invest in. The following dividend yields are the last reported as of November 30, 2011. As prices change, dividend yields will change.

Diversified Alternative Energy ETFs

These ETFs invest in most or all areas of the alternative energy sector.

PowerShares WilderHill Clean Energy (PBW) is an ETF that corresponds and tracks the WilderHill Clean Energy Index. This index is comprised of approximately 55 companies that are involved in alternative energy and traded on the US stock exchanges. Some of their top holdings include, Fuel Systems Solutions, Trina Solar, Tesla Motors, International Rectifier, Rubicon Technology and Yingli Green Energy. This ETF has an expense ratio of .60% and a dividend yield of 1.80%.

PowerShares WilderHill Progressive Energy (PUW) is an ETF that tracks the WilderHill Progressive Energy Index. This index is close to PBW but also adds in some fossil fuel technologies with a goal of producing cleaner fossil fuel energy. Their top holdings include Denison Mines, Eaton, Hexcel, Johnson Controls and Siemens. The expense ratio is .60% with a dividend yield of 1.40%.

PowerShares Global Clean Energy (PBD) is an ETF that follows the WilderHill Global Innovation Index. Their top holdings include, Meyer Burger Technologies, SolarWorld, China Longyuan Power Group, Vestas Wind Systems and GCL-Poly Energy Holdings. PBD has an expense ratio of .75% and a dividend yield of 1.05%.

Market Vectors Global Alternative Energy ETF (GEX) tracks the Ardour Global Index of global companies that are mainly in the alternative energy industry. Their top holdings include Kurita Water Industries, Cree Inc, Enel Green Power, Vestas Wind Systems, First Solar, Verbund, Cosan, Covanta Holdings and Polypore International. GEX has an expense ratio of .67% and a dividend yield of 1.68%.

iShares S&P Global Clean Energy Index Fund (ICLN) follows the S&P Global Clean Energy Index. Their top holdings include, Energy Company of Minas, Gerais, National Electricity Company of Chile, Hokurika Electric Power, Verbund, China Longyuan and GCL-Poly Energy Holdings. The expense ratio is .48% with a yield dividend of 2.38%.

Dedicated Alternative Energy ETFs

The following ETFs are dedicated to one specific sector of alternative energy industries.

Guggenheim Solar (TAN) is an ETF for all solar companies. If you believe solar energy is the future and a good investment, than TAN is an ETF you can invest in. This ETF tracks the MAC Global Solar Energy Index and has among its top holdings the following global solar companies. First Solar, GCL-Poly Energy, Meyer Burger Technology, GT Advanced Technologies, MEMC Electronic Materials, Trina Solar, SMA Solar and SolarWorld. The expense ratio is 0.65% with a dividend yield of 0.95%.

First Trust ISE Wind Energy (FAN) is an ETF that invests in companies that are involved in all phases of the wind energy industry. These wind alternative energy companies include, Vestas Wind Systems, Hansen Transmissions International, REpower Systems, Iberdrola, EDP Renovaveis, Nordex and China Longyuan Power Group. FAN has an expense ratio of 0.60% and a dividend yield of 0.70%.

Market Vectors Solar Energy (KWT) is an ETF that invests in the solar energy sector of the alternative industry. This ETF tracks the Ardour Solar Energy Index. Their top holdings include MEMC Electronic Materials, First Solar, GT Advanced Technologies, Gintech Energy, Suntech, Neo Solar Power, Trina Solar and Yingli Green Energy Holdings. This ETF has an expense ratio of 0.75% and a dividend yield of only 0.25%. Volume can be rather low.

PowerShares Global Wind Energy (PWND) ETF tracks the NASDAQ OMX Clean Edge Global Wind Energy Index and holds the following wind alternative energy companies, China Longyuan Power, Vestas Wind, Hansen Transmission and Enel Green Power.

Nuclear Power as an Alternative Energy

After the recent nuclear disaster in Japan, it is hard to forecast if nuclear energy will be an alternative to oil. There is one ETF that does invest in companies related to the nuclear energy industry and at this time pays the highest dividend yields in the alternate energy ETF sector.

Market Vectors Uranium + Nuclear Energy (NLR) follows the DAX Global Nuclear Energy Index. Their top holdings include Exelon, Electricite de France, Mitsubishi Heavy Industries, Areva, Uranium One, Cameco, Constellation Energy Group and Central Vermont Public Service. This ETF has an expense ratio of .57% and a dividend yield of 6%.

Alternative Energy ETFs Conclusion

If you believe that alternative energy companies will increase, these alternative energy ETFs can be a good addition to your portfolio. Research these ETFs and look at the expense ratios and volume. Low volume can mean wide price swings which are not to an investor’s advantage. As of today, the YTD (year-to-date) returns are quite negative but this could change if oil climbs higher or government laws change even more to stop CO2 emissions.

Copyright © December 2011 Sam Montana

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