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After being stressed over the past few years, the renewable energy sector has fired on all cylinders and is the major gainer this year, clearly outpacing the broad market. This is largely thanks to a number of growth stocks in the space, which was backed by the surging stock market, favorable green energy trends and Obama’s ‘Climate Change Action Plan’.
 
Obama Plan Proves Beneficial
 
In June, President Obama unveiled a broad environmental plan in order to curb carbon pollution from coal-fired power plants and make cleaner forms of American-made energy. The plan hinges on three pillars – cutting carbon emissions, preparing for the impact of climate change, and leading international efforts on the subject (read: 3 ETFs to Buy for Obama's Climate Change Plan).
 
The strategy would definitely benefit a variety of clean energy firms, as it would improve energy efficiency across the board while reducing other non-carbon emissions. The surge can already be seen in many renewable energy stocks like First Solar ((FSLR - Analyst Report)) and SolarCity ((SCTY - Snapshot Report)), though trading has been slightly choppy of late due to mixed earnings and disappointing guidance by many firms.
 
Solid Industry Outlook
 
The depletion of fossil fuel reserves, higher oil and gas prices, as well as more efficient alternative energy applications has made clean power more viable, adding optimism into the sector. The demand for renewable energy, in particular wind and solar, is growing by leaps and bounds for electricity generation in the U.S.
 
Currently, clean energy accounts for nearly 16% of U.S. electricity generation and is expected to increase to 33% over the next three years, as per the Energy Information Administration (EIA). This is especially true given that global warming and high fuel emissions issues have resulted in rising popularity of clean energy sources (read: 5 Clean Energy ETFs Leading the Sector's Surge).
 
The new and advanced technologies are able to provide clean environment and have reduced dependence on fossil fuels, coal or other energy resources, suggesting a bullish outlook on the clean energy stocks. Moreover, the EIA projects clean energy production to grow at a faster rate through 2040. In fact, solar, wind and geothermal production will likely double over the next 25 years.
 
Given the bright outlook and the firmer oil prices, the trend of a bull run in the space is likely to continue into 2014. As such, investors seeking to ride out this booming trend want to tap the space in the ETF form.
 
For those investors, we have highlighted three ETFs that could be worth a look if America continues to embrace green technology, and energy efficiency (see: all the Alternative Energy ETFs here).
 
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
 
This fund tracks the Nasdaq Clean Edge Green Energy Index and managed assets worth $90.7 million. It charges 60 bps in fees per year while volume is light suggesting a wide bid/ask spread.
 
In total, the product holds 43 securities in its basket with largest allocations to Linear Technology (LLTC), FSLR and ITC Holdings (ITC). These firms combined make up for 23% of total assets. From a sector look, technology firms dominate this ETF, accounting for nearly two-fifths of the assets while oil & gas, and industrials round out the next two spots.
 
QCLN is up 83.6% in the year-to-date time frame and it has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a ‘High’ risk outlook.
 
Market Vectors Global Alternative Energy ETF (GEX)
 
This ETF provides global exposure to about 31 companies that are primarily engaged in the business of alternative energy by tracking the Ardour Global Index. The fund holds roughly 30 stocks in its basket with AUM of $92.6 million while charging 62 bps in fees per year. Average daily volume is also paltry for this fund (read: A Comprehensive Guide to Alternative Energy ETFs).
 
The product is highly concentrated on the top firm – Eaton (ETN) – with 10% of assets, closely followed by Cree (CREE) and Vestas Wind Systems (VWDRY) with at least 8% share each. From a sector perspective, industrials take the largest share with 47% while information technology (26.5%) and utilities (14.7%) round off to the next two spots.
 
In terms of country exposure, the fund is skewed toward the U.S. with 59% share while China, Denmark, Italy and many others receive minor allocations. The ETF has gained over 62% year-to-date.
 
PowerShares WilderHill Clean Energy Portfolio Fund (PBW)
 
This product follows the WilderHill Clean Energy Index, holding about 51 stocks in its basket. The fund has amassed $202.4 million in its asset base and sees solid volume of more than 420,000 shares a day. The expense ratio comes in at 0.70%.
 
The ETF is pretty well spread out across various securities, as each make up less than 4.6% of total assets. Canadian Solar (CSIQ), SunEdison (SUNE), and FuelCell Energy (FCEL) are the top three elements in the basket. From a sector look, the focus is on information technology firms (46%), but industrials and materials also receive double-digit allocations.
 
PBW added nearly 51% in the year-to-date time frame (read: Can the Clean Energy ETF Bull Run Continue?).
 
Bottom Line
 
Given strong fundamentals ahead, investors should ‘go green’ with the above three products that are slightly tilted toward growth stocks, and are expected to deliver above-average returns compared to others in the space.
 
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