Clean Energy Mutual Funds and ETFs

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Tom Konrad Ph.D., CFA
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UPDATE 3/4/2011: An up-to-date article on selecting green mutual funds and ETFs can be found here.

by Tom Konrad

For new investors looking to green their portfolios with clean energy, the first thought is usually mutual funds.  The following three are available in North America:

Mutual Funds

Expenses

New Alternatives Fund (NALFX)

0.95% + Sales load

Guinness Atkinson Alternative Energy Fund  (GAAEX)

1.64%

Calvert Global Alternative Energy Fund (CGAEX)

1.85%

Each of these funds has expenses which would be considered high by industry standards, although they have all dropped noticeably since I covered mutual funds in 2007.  High expense ratios are a considerable drag on long term performance.  To avoid high expense ratios, knowledgeable investors usually turn to index mutual funds and exchange traded funds (ETFs). 

There are no clean energy index mutual funds currently available, but recent years have seen a rapid proliferation of new exchange traded funds.  At current count, there are four ETFs focusing on clean energy,  as well as three sub-sector ETFs for the Solar and Wind sub-sectors.

Exchange Traded Funds (ETFs)

Expense ratio

Comments

Powershares Wilderhill Clean Energy Portfolio (PBW)

0.60%

The oldest ETF in the sector, this fund holds only US-traded companies.

Powershares Global Clean Energy (PBD)

0.75%

A better diversification alternative than PBW

Van Eck Global Alternative Energy Fund (GEX)

0.65%

This is my current favorite for a single investment in Clean Energy, due to the combination of a low expense ratio and a global focus.

First Trust NASDAQ US Liquid (QCLN)

0.60%

The advantage of the low expense ratio is offset by the disadvantage of a US-only focus.

Sub-sector ETFs

Expense ratio

Comments

Claymore/Mac Global Solar Index ETF (TAN)

0.65%

Global Solar companies

Market Vectors/Van Eck Global Solar Energy ETF (KWT)

0.65%

Global Solar companies.

First Trust Global Wind Energy Index (FAN)

0.60%

Global Wind Power companies.

I recently wrote in depth about the Solar and Wind ETFs, including how I might (and might not) use them as part of a larger portfolio.  For people looking for a single investment in clean energy, I prefer the diversification of the global ETFs.  Many leading renewable energy companies (especially in the wind sector) are not traded on North American exchanges.&nbsp
; Hence, for a person wanting a single investment in the sector, the Van Eck Global Alternative ETF (GEX) is currently the best option, followed closely by Powershares’ Global Clean Energy fund (PBD), because of its slightly higher expense ratio.  

DISCLOSURE: The Guinness Atkinson Alternative Energy fund is an advertiser on  Alternative Energy Stocks.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

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1 COMMENT

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