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Investors have been betting on clean energy ETFs for years with disappointing results across the board. Many funds in this space have lost double digits --if not worse-- in years past, as a reduction in government subsidies, low prices for traditional fuel sources, and a general lack demand for these risky companies have combined to dull the investment case for alternative energy ETFs.

However, investors have seen a bit of a reversal in the market so far in 2013, as a number of pieces of good news hit the segment. Many solar companies have posted solid guidance levels while other firms—such as investment all-star Tesla (TSLA - Analyst Report)—have boosted optimism over the entire space (Read Go Green with These 3 Clean Energy ETFs).

In fact, of the 12 ETFs we currently classify as alternative energy ETFs, all have seen positive performances in the year-to-date time frame, with fully two-thirds of the group beating out the S&P 500 in the period. Thus, we are seeing a dramatic turnaround in the market, suggesting that the clean energy world might finally be getting back on track.

How to Play

Given this dramatic move higher in the space, one can certainly argue that clean energy is finally in a bull market environment. As a result, investors might want to look to any of these top performing ETFs as the go-to way to play a continued surge in this volatile corner of the ETF world:

Market Vectors Global Alternative Energy ETF (GEX - ETF report)

This ETF tracks the Ardour Global Index, focusing on companies that are primarily engaged in the business of alternative energy. The fund holds about 30 stocks in its basket, charging investors 62 basis points a year in fees for the exposure.

Assets are well spread out despite the low number of holdings, with roughly one-third going to industrials, one-third to technology, and the rest in utilities, consumer discretionary, and energy firms. From a cap perspective, there is a definite tilt towards smaller securities, while the national profile is skewed towards the U.S. (53%), but Europe (27%) is well represented too (read Behind the Rebound in Energy ETFs).

In terms of performance, GEX has done quite well, adding about 57% in the trailing six month time frame. And, in the past month, GEX has moved higher by an impressive 23.8%, suggesting that the bullish momentum has really been building lately.

First Trust Nasdaq Clean Energy Green Energy Index (QCLN - ETF report)

This product also follows a benchmark of clean energy companies, giving exposure to about 40 firms in total. Fees are bit less in this product at 60 basis points a year, but volume is relatively light as well.

Technology firms dominate this ETF, accounting for just over two-thirds of the assets. Beyond technology though, consumer stocks make up about 16% (thanks entirely to TSLA), while energy, industrials and basic materials round out the rest (also see Clean Energy ETFs: Thrive with these Two Broad Funds).

For market cap levels, the fund is extremely diversified with just 16% of assets going to large cap stocks. The fund is almost entirely focused on the U.S. market though, so don’t look for much from QCLN in terms of international diversification.

The performance for this ETF has been even more impressive lately, as the fund has surged higher by about 69% in the last six months. Interestingly, the product is up about 31% in the last four weeks, largely thanks to the incredible run by top holding Tesla Motors.

Guggenheim Solar ETF (TAN - ETF report)

For a concentrated clean energy play, investors have Guggenheim’s TAN, focusing in on solar companies. The ETF holds about two dozen companies in its basket, charging investors 65 basis points a year in fees for exposure (see 3 Energy ETFs for America’s Production Boom).

Unsurprisingly, the ETF is heavily concentrated in the technology sector, while small and mid cap stocks dominate from a cap perspective. Top holdings include First Solar (FSLR - Analyst Report) at nearly 20% of assets, along with China-based GCL Poly Energy Holdings (9.9%), Power-One (PWER), and SunPower Corp (SPWR).

Solar has turned out to be the real winner lately, adding a robust 111% in the past six months alone. And in the past month, the ETF has surged by nearly 47%, suggesting an incredible level of positive momentum lately.

Bottom Line

The alternative energy sector has been extremely hot, crushing the broad market in the past few months by a pretty wide margin. By and large, most of the gains have actually happened in the past few weeks though, as strong data from solar companies and bullish reports from emerging companies have carried the sector sharply higher.

Whether this incredible run can continue is anyone’s guess, but a pullback from these lofty levels—due to some short-term profit taking—seems likely. Still, it is important to remember that many alternative energy ETFs have a long way to go to get back to all-time highs, so there still could be plenty of room to run in this intriguing, but often overlooked, space.

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