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3 ETFs to Buy for Obama's Climate Change Plan

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2013 has been a good year for the alternative energy space, pretty much across the board. Solar companies have seen their share prices surge, while firms that use ‘green’ technology—like Tesla Motors (TSLA - Free Report) —have become market darlings.

While there is a bit of debate if this trend can continue in the near term, and especially in a choppy market, there is hope for the space thanks to politics. Recently, President Obama outlined a new ‘Climate Change Action Plan’, which could act as a new catalyst for the industry and continue the positive momentum in the space (also see Clean Energy ETFs: The Real Bull Market?).

Obama’s Plan in Focus

In the plan, Obama makes a case for facing climate change head-on, citing various temperature statistics, as well as recent bouts of extreme weather, as reasons to take action now. Seemingly, his plan to combat this is a three pronged approach; cutting carbon emissions, preparing for impacts of climate change, and leading international efforts on the subject.

While there is sure to be plenty of debate about this program and how it impacts a variety of industries, this is undoubtedly great news for the clean energy world. Billions will be put towards the in-favor sector as a result of this, suggesting that investors can certainly benefit from this trend towards clean energy as well.

In particular, there are a number of clean energy ETFs which could be beneficiaries if Obama’s Climate Action Plan is enacted to any meaningful extent. Below, we highlight a few of the likely biggest winners from this plan, and the key aspects of Obama’s proposal which make these funds excellent picks in this pro-clean energy environment:

Market Vectors Uranium & Nuclear Energy ETF (NLR - Free Report)

One of Obama’s top priorities with this new plan is to reduce carbon pollution from power plants. There is a huge bang for your buck in this corner of the market, as power plants account for roughly one-third of all greenhouse gas emissions in the U.S., according to the report.

As such, Obama is now pushing for the EPA to develop new standards aimed at carbon pollution levels for both new and existing power plants. While this is obviously a big step, investors should note that he didn’t outright call for a ‘carbon tax’, preferring instead to go this route in order to reduce emissions (see Are Nuclear Power ETFs Back on Track?).

Still, this program looks to pretty terrible news for companies in the coal sector, and the coal ETF, (KOL - Free Report) , though it could be great news for nuclear power ETFs. In particular, the Market Vectors Uranium & Nuclear Energy ETF (NLR - Free Report) looks to be a huge beneficiary, as nuclear power doesn’t have any greenhouse emissions.

For this reason, a look to this ETF could be ideal, as the fund not only invests in nuclear-centric utilities, but it also puts assets to work in the mining space. Companies in this sector could see a boost in demand if nuclear power becomes in greater demand in the U.S., adding onto the positive trends the sector is seeing in many emerging markets around the globe.

It is worth noting though, that volume is a little light on this product and that only 20 stocks are in its basket. This means that the fund may be a bit concentrated and have some wider bid ask spreads, though it is relatively cheap from an expense perspective. Plus, nuclear is in the top priority sector for this plan, so it stands to benefit the most from any big changes in emission caps or tracking.

Guggenheim Solar ETF (TAN - Free Report)

Another key aspect of the plan looks to double renewable electricity generation by 2020. While this looks to be done via a combination of wind, solar, and geothermal, solar is arguably the most likely candidate to pick up the slack.

That is because solar power is one of the cheapest forms to install and maintain, while it doesn’t have the same high initial outlay that many wind farms or hydroelectric systems have. Plus, solar is quickly becoming more cost competitive with traditional power firms, particularly when subsides or power mix targets (which require some regions to use alternative fuels at least for part of their production) are implemented.

One way to benefit from an increased use of solar power is via TAN, a popular solar-focused ETF. The fund has just over $100 million in assets, and sees solid volume levels of just under 200,000 shares a day (read Solar ETF Investing 101).

However, investors should note that the ETF is quite spread out from a national perspective, as American stocks only make up about 44% of the total. This means that the fund might not be the best ‘pure play’ on the trend in the U.S., though it can definitely be argued that foreign firms will benefit from a renewed focus on solar power in the world’s biggest economy too.

PowerShares Wilderhill Clean Energy ETF (PBW - Free Report)

Beyond specific programs targeting renewables or power plants, the plan also outlined a number of broad initiatives which could benefit the entire sector. For example, funding for clean energy technology is expected to increase by 30% in the fiscal year 2014 budget, while steps are also being taken to expand and modernize the electric grid.

Beyond that, the plan also looks to improve energy efficiency across the board, while also reducing a variety of other non-carbon emissions as well. Clearly, the program is intended to be wide in scope, potentially benefiting a variety of clean energy firms in the process.

Fortunately for investors, there are a number of ways to play the broad clean energy space with ETFs. While (QCLN - Free Report) is an intriguing—and outperforming—option, the most popular is from PowerShares and their PBW (read Go Green with These 3 Clean Energy ETFs).

This ETF does a solid level of volume of just under 400,000 shares a day, holding about 50 companies in its basket. The focus is on technology firms (40%), but industrials, basic materials, utilities, and consumer discretionary all receive double digits allocations as well.

The spread out nature of this fund—which uses an equal-weight methodology—is perfect for those seeking to make a broad play on the space. Plus, close to 80% of the fund is in North American firms, so it strikes at the heart of the companies who are most likely to benefit from a new Obama plan.

Bottom Line

No matter your stance on climate change, you can’t deny that the clean energy space has been a big winner in 2013, and that it has a bright long term future. This could be especially true if politicians continue to throw their weight behind the sector, and develop a variety of new, pro-green programs for the space (also see The Guide to Socially Responsible ETF Investing).

A great example of this preferential treatment for clean energy is by looking at the recent Obama plan on climate change. This program looks to greatly expand the use of alternative and clean fuels, potentially acting as another catalyst for the sector in the near term.

If you believe that this might be the case, it may be time to consider taking a closer look at one of the clean energy ETFs outlined above. Any of these funds could be well positioned to take advantage of a renewed focus on clean energy, making them potentially intriguing investments in what is an otherwise very uncertain time for the market.

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Follow @Eric Dutram on Twitter

Author is long PBW.

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