While many investors might want to support ‘green’ companies, these firms haven’t exactly made a great case to be in portfolios over the past few years. Companies in this segment have seen big subsidies and more interest from the every-day consumer, but have still failed to attract enough demand to remain profitable or see their stock prices soar.
However, while this has largely been the story of clean energy over the past few years, the outlook might finally be shifting for this space. Many companies have actually seen pretty solid performances to start 2013, finally beating out more traditional energy firms in YTD terms.
This represents a huge reversal, as many clean energy firms have lost double digits—if not 40% or more—in the trailing three year period. This suggests that, given the insatiable energy demand across the globe, we might finally be seeing a place for clean energy in the market (see 3 Sector ETFs Surviving This Slump).
So, it could finally be time to take a closer look at some of the names in the clean energy universe. Many of the weakest firms have died off, and new technological processes and decent demand are helping to boost prospects for the remaining players in the market.
Still, clean energy investing is quite risky, and especially so from an individual security perspective. For this reason, a clean energy ETF approach could be the way to go, as this still allows for a bet on clean energy but with hopefully a more diversified and lower risk technique.
If investors like this idea, it should be noted that there are a plethora of ETFs tracking this segment currently on the market, each with their own pros and cons. For this article, we have selected 3 of the best performing clean energy ETFs that focus on the broad space, as any of these could be big beneficiaries from a continued positive trend in this intriguing corner of the stock market:
iShares S&P Global Clean Energy Index Fund (ICLN - ETF report)
This ETF tracks the S&P Global Clean Energy Index, a broad benchmark of companies engaged in some aspect of the clean energy business. The product charges 48 basis points a year in fees, while its volume is a little light along with a moderate asset level of just $30 million (read 3 Biggest Mistakes of ETF Investing).
The portfolio doesn’t have much of a focus in the clean energy segment, as it includes biofuels, ethanol, geothermal energy, and the more well-known hydro, solar and wind. Still, the portfolio is pretty small holding just over 30 stocks in its basket.
In terms of sector classification, ‘utilities’ take the biggest chunk, followed by broad alternative energy, and semiconductors. Unsurprisingly, large caps make up less than half of the portfolio, giving a heavy focus on mid and small cap stocks instead.
As alluded to earlier, the performance for this ETF has been terrible over the long haul, as the fund has lost more than 50% of its value in the last 36 months. However, it has seen a huge reversal as of late, gaining 5.7% in the past three months, beating out (SPY - ETF report) in the process.
Market Vectors Global Alternative Energy ETF (GEX - ETF report)
This ETF also looks to track the broad performance of the alternative energy industry across the global, following the Ardour Global Index. The ETF charges investors 62 basis points a year in fees, has light volume as well, though it does have a higher market cap of about $50 million (see Three ETFs for the Energy Efficiency Boom).
GEX has a pretty broad focus as well, though it has about half its exposure in American stocks. The fund also has about 30 stocks in its basket, with other key countries in the fund coming in as Ireland, China, and Brazil.
Sectors are tilted towards industrials in this ETF, while technology and utilities round out the top three. Large caps are even less popular in this fund, accounting for just 22% of the assets, compared to 30% for small caps and 43% for mid caps.
Long term performance for GEX has also been horrendous, with the ETF losing about 43% in the trailing three year period. Sentiment has reversed in recent trading though, as over the trailing three month period it has gained about 9.1%.
First Trust NASDAQ Clean Edge US Liquid Series Fund (QCLN - ETF report)
Another option in the clean energy ETF world is QCLN, a fund that tracks the Nasdaq Clean Edge US Liquid Series Index. This results in a fund that charges investors 60 basis points a year in fees, and has about $26 million in total assets under management.
Unlike the other two on this list, this product zeroes in on the technology segment for its exposure, though it has a similar (40) amount of stocks in its basket. Firms classified as semiconductor companies account for just over half the portfolio, while electronic component makers (13%), and automotive (11%) round out the rest of the top three (also read PUW: Crushing the Clean Energy ETF Competition).
Investors should also note that this product is focused on the U.S., which is a big departure from the other two which have a lot more in international holdings. In terms of capitalization exposure, large caps aren’t really a part of this fund, as instead the focus is on small and micro cap firms, which account for over half of the fund’s assets.
This ETF, despite its small cap focus, has actually been the (comparatively) better performer over the past three years, losing 33% in the time frame. This outperformance has been more apparent in the past three months, as it has added just under 11% in the time frame, nearly doubling the S&P 500 in the same time frame.
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