Four ETFs Profiting From Green Energy

It doesn’t take an genius to see the writing on the wall for green energy.

Governments around the globe from the United States to Europe to China are clearing the way for investors to make some “green” while investing in green-energy technologies.

Clean energy technology has been a universal component of government stimulus packages around the globe. Here in the United States, President Obama continues to focus the spotlight on clean energy with many visits to such projects around the country. Over $100 billion from the administration’s stimulus package has been designated for the advancement of clean energy technologies.

Congress is currently trying to cobble together perhaps the most far-reaching climate and energy legislation ever. The legislation would not only initiate a “cap and trade” system for emissions, but would require the growth of renewable energy by law.

While renewable energy sources currently supply about 2% of the nation’s electricity supply, this legislation may requirethat number to go as high as 20% by 2020. That’s an incredible amount of new power capacity.

And it’s not just us.

Globally, the European Union has been “green” since signing the Kyoto Treaty in 1997. They have set emission reduction targets and renewable generation targets since signing the protocol. China and India have also set minimum renewable energy requirements and in their recent stimulus package, China allocated $30 billion worth of “green” stimulus.

Here’s why green investing is a sector you can’t afford to miss, and four ways to easily add some “green” to your portfolio.

Clean Energy - A Growth Industry

Currently, renewable energy sources account for only about 6.2% of total global power sector capacity. This means there is a lot of room left for growth. And for investors to profit.

Around $250 billion was spent on new global power capacity in 2008 and, for the first time ever, the majority of the money went toward clean energy. According to a United Nations report, renewable energy sources accounted for $140 billion or 56% of the $250 billion spent toward new power capacity in 2008.

Many industry experts point to substantial growth prospects across nearly all of the clean energy technology sectors. Here are some examples:

• From 2009 and 2012, the wind industry is forecast to grow capacity from 104,034 megawatts to 267,837 megawatts, an increase of 157%.

• Installed solar capacity is forecast to increase 347% to over of 72 gigawatts between 2009 and 2015.

• And in the next 6 years, geothermal energy capacity is forecast to grow from 11,007 megawatts to 20,800 megawatts, an increase of 89%.

So how do we play this green building boom? Simple.

Four Clean Energy ETFs

How does an investor make some “green” from this macro-economic trend? There are several ways for investors to turn this long-term transition of our energy usage into sizable portfolio gains.

While many will buy individual stocks in the various clean energy sectors, figuring out the long-term winners and losers at such an early stage of the industry’s development is difficult if not impossible. For long-term investors, a diverse clean energy exchange-traded fund (ETF) may be the best alternative.

Because of social and political roadblocks in the United States, the leaders in developing clean energy technology for years have been overseas companies. So our preference in choosing clean energy ETFs is to choose ETFs which have a heavier weighting toward these overseas companies, but don’t discount the good

ol’ U.S.A entirely.

Here are four ETFs which fit that criteria:

Van Eck Market Vectors Global Alternative Energy ETF (GEX)

This ETF has a concentrated portfolio of alternative energy companies consisting of only 31 components, with American companies making up more than 38% of the fund.

The largest component of the ETF by far is the Danish wind turbine company, the largest wind turbine company in the world, Vestas Wind Systems. Vestas has nearly quadrupled in price over the past five years.

The other top ten components of the fund include First Solar, MEMC Electronic Materials, Kurita Water Industries, Gamesa, Iberdrola Renovables, Verbund, Cree, Suntech Power Holdings, and Covanta Holding.

InvescoPowerShares Cleantech Portfolio (PZD)

This ETF is divided almost evenly between the United States and the rest of the globe. With U.S. stocks making up just over 52% of the fund’s 77 components.

Many global giants are included in the top ten components of the fund which are: ABB, Siemens, Corning, Schneider Electric, Iberdrola Renovables, First Solar, Vestas Wind System, Kurita Water Industries, Roper Industries,and Novozymes.

InvescoPowerShares Global Clean Energy Portfolio (PBD)

This ETF consists of a wider mix of companies, with 83 components. But American companies make up only 25% of the fund.

The top ten components of the fund include: EDF Energies Nouvelles, Hansen Transmissions, American Superconductor, Gamesa, Nordex, Iberdrola Renovables, Acciona, EDP Renovaveis, Vestas Wind Systems and China High Speed Transmission Equipment Group.

Ishares S&P Global Clean Energy Index Fund (ICLN)

This ETF has a much more concentrated portfolio of only 32 components, with U.S. companies making up about 21% up of the fund.

The top ten components of the fund include: Vestas Wind Systems, Empresa Nac Elec-Chile, Gamesa, Suntech Power Holdings, EDP Renovaveis, Covanta Holding, Iberdrola Renovables, First Solar, Solarworld and Renewable Energy Corp.

You’ll notice, after looking at the holdings, that there is much overlap in these exchange-traded funds. Depending upon your need for diversification or domestic holdings, you might want to choose only one of these funds for your portfolio so as not to double up on a specific holding.

In short, there is a major global trend change occurring in the way we generate, deliver, and use energy. And this trend will be very profitable for investors that catch that it early.

While there are countless small startups and companies vying to capture this “green” gold rush, adding these four funds to your portfolio is an easy and hassle free way of doing just that.

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