Investing in Alternative Energy ETFs

As alternative energies become less and less ‘alternative’ with each rally in crude oil prices, two things have become clear. The first is, at least some of these solar, wind, and geothermal energy companies will survive. The second reality? Picking which of these companies is likely to survive can be tough to do. Savvy alternative energy investors may do just as well with some of the new exchange-traded funds focused solely on these young industries. Here’s a quick review of the major ones.

Van Eck Global Alternative Energy ETF (GEX)

This fund can hold any variety of alternative energy stocks, and may well be the easiest way to simply own a piece of the larger trend without needing to choose a specific industry. With a price/earnings ratio of 24.21, the price is at least tolerable.

Van Eck Market Vectors Solar Energy (KWT)

For investors looking to capture a piece of the solar-power craze, this is not the only option…but it’s one of the few. There are at least a couple dozen solar-power stocks, with a wide disparity between the best and worst performers. The exchange-traded fund can remove the headache of picking one of them.

Van Eck Market Vectors Nuclear Energy ETF (NLR)

This fund isn’t as purely nuclear as the name would have one believe. There’s nothing wrong with the underlying companies, but they’re just as apt to be involved in traditional forms of energy production.

PowerShares Global Clean Energy Portfolio (PBD)

The Clean Energy ETF first aims to invest in companies that can produce energy cleanly. It just so happens that these same companies are doing so without burning fossil fuels. As such, there may be overlap (quite a bit) with holdings in other funds. This ETF could be considered more of a socially responsible fund, as there’s no particular investment advantage this one has over others.

PowerShares WilderHill Clean Energy Portfolio (PBW)

Everything said about the clean energy fund trading under the ticker ‘PBD’? Pretty much the same applies for ‘PBW’. It’s just based on a slightly different index.

First Trust NASDAQ Clean Edge ETF (QCLN)

The idea here is the same as with PowerShares’ clean energy portfolios, but First Trust’s ETF has a wider universe of stocks under its umbrella. Biofuels and advanced batteries (which will make electric cars a reality) are a couple of the quirky industries represented here.

Claymore/MAC Global Solar Energy (TAN)

The volume for this ETF has been better than Van Eck’s version of a solar fund, but fundamentally – on average - the underlying stocks of the Claymore solar ETF are about ten times more expensive. Things change over time, but they’d have to, to make this fund attractive.

It’s worth noting there are several other ETFs lumped in the alternative energy category. Many of those, however, have very little ‘alternative’ to them. They are largely made up highly-diversified enterprises, only a small fraction of which are actually alternative-energy-related. The Van Eck nuclear ETF is a modest example. There’s nothing inherently wrong with the companies; the ETF just somewhat defeats its purpose.

Investors may also want to keep in mind how even though green-friendly technology may work, and perhaps even be profitable, it doesn’t mean the underlying stocks will go higher. The entire industry must be looked on favorably by the market for any of these ETFs to be considered a successful investment.

That said, all of these alternative energy technologies have done just that – garnered investor interest - at some point in time. And, they are apt to do it again. Timing is everything.

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