PBW Invesco WilderHill Clean Energy ETF

President Obama’s fresh environmental plan has proved to be beneficial for renewable energy stocks. Alternative energy is the most happening thing in the energy sector now in the wake of widespread concerns over carbon emission, climate change and other pressing environmental issues.  (Read: Can Solar ETFs Continue Their Rally in 2014?).
 
A major growth area in the renewable space is solar energy. Following a listless 2011, the solar industry rallied in 2013. The U.S. Energy Information Administration (EIA) estimates that U.S solar demand increased more than 32% in 2013. For 2014, the EIA projects that

U.S. solar energy consumption will boom by roughly 35%. The expected increase in demand is likely to fuel top-line growth at the solar manufacturers (Read: Best ETF Strategies for 2014). It is likely that for the first time in more than 15 years the U.S. has installed more solar capacity than the world leader Germany.
 
While U.S. and China have been playing a big role in recent years in driving the industry, other nations are also pushing hard to have a home-grown solar generation capacity as a remedial measure to solve their electricity crisis. The latest to join this list is Asia's third largest economy, India. The country recently planned for a $4.4 billion solar plant which could perhaps be the world's largest. (Read: 3 Sector ETFs Surging to Start 2014)
 
Again, in Japan, companies like First Solar Inc. (FSLR) are investing substantially to install emission-free renewable set-ups. The country is expected to become the second largest market for solar products after China. This comes on the heels of Japan deactivating all its nuclear reactors after the Fukushima nuclear disaster. First Solar – the largest U.S. solar company – is teaming up with Japanese counterparts to develop, build and operate solar power plants.
 
Among the other alternative energies, the U.S. wind industry is now gradually picking up. EIA expects wind capacity to expand 8.8% in 2014 to about 66 gigawatt (GW) and 14.6% to over 75 GW at the end of 2015. Electricity generation from wind is projected to increase by 2.2% this year and 11.4% in 2015, contributing over 5% of total electricity generation by the end of 2015 (Read: Alternative Energy Stock Outlook - Feb 2014)
 
Again, hydropower is considered as the leading renewable energy source in the U.S. With the emergence of new technologies, like marine and hydrokinetics, this industry is likely to continue to generate vast amounts of sustainable energy throughout the country.

ETFs to Tap the Sector

For investors seeking to play this trend in ETF form, the following series of alternative energy ETFs could make for interesting picks.

WilderHill Clean Energy Portfolio (PBW)

Launched in March 2005, PBW tracks the WilderHill Clean Energy Index and manages an asset base of $211.9 million which it invests in a portfolio of 53 stocks.

It is well diversified across various sectors. Information Technology takes the top spot with a 44.01% allocation followed by Industrials (23.24%) and Energy (9.55%).
 
The fund’s top 10 holdings jointly contribute 26.43% towards the fund. The product invests almost 90% in companies related to cleaner energy and it charges a hefty 70 basis points in fees.

PBW has rewarded investors with solid returns of 43.66% over the past one year.

Market Vectors Global Alternative Energy ETF (GEX)

Launched in May 2007, GEX tracks the Ardour Global Index, focusing on companies that are primarily engaged in the business of alternative energy comprising solar power, bio energy, wind power, hydro power and geothermal energy.

The fund holds about 31 stocks in its pocket and has assets under management of $96.2 million and charges an expense ratio of 62 basis points annually. The fund is liquid with 12,483 shares changing hands in a day on an average.

Apart from robust holdings in the U.S., the product offers solid exposure to Europe and some Asian countries. Again, Industrials, Information Technology and Utilities take the top three spots, adding 86.1% in sector holdings. Further, the fund’s top 10 holdings jointly contribute 64.89% to the fund. Tesla Motors Inc. (TSLA), Eaton Corp. (ETN) and Vestas Wind Systems A/S are the top three holdings, with 28.71% of asset allocation in total.

Global Clean Energy Portfolio (PBD)
 
This ETF follows the WilderHill New Energy Global Innovation Index, giving investors exposure to about 101 companies that are engaged in renewable sources of energy and technologies facilitating cleaner energy.

Assets under management come in at just over $89.3 million and this ETF charges investors 75 basis points a year in fees. In terms of performance, PBD has rewarded investors with solid returns of 43.47% in a one-year span. The fund’s top 10 holdings contribute 17.41% to it.

PBD is heavy in Information Technology, as this represents 36.04% of the fund. This is followed by Industrials (31.43%) and Utilities (19.52%). In terms of countries, the U.S. dominates with 32.04% followed by China having 15.09%.

First Trust Nasdaq Clean Energy Green Energy Index (QCLN)

This ETF tracks the NASDAQ Clean Edge Green Energy Index and follows a benchmark of clean energy companies, giving exposure to 42 such companies in total with an asset base of $128.0 million. The fund charges investors 60 basis points a year in fees for the exposure. The top 10 holdings comprise 60.41% of the total fund. Importantly, this product has rewarded investors with a solid one-year return of 72.09%.

Technology firms dominate this ETF, accounting for 38.02% of the assets. Beyond technology though, Oil and Gas stocks make up about 22.26%, while Industrials, Consumer Goods and Utilities hold 16.95%, 10.55% and 6.79%, respectively. In terms of geographical diversification, the fund is almost entirely focused on the U.S. market.

iShares Global Clean Energy ETF (ICLN)
 
This ETF tracks the S&P Global Clean Energy Index with 31 holdings and an asset base of $47.8 million. ICLN has given an impressive one-year return of 41.36% and charges investors 48 basis points a year in fees for the exposure.

In terms of geographical breakdown, Japan leads the list with 20.33%, while the U.S. holds the second spot with 19.87%. China comes third occupying 17.37% of the holdings. ICLN is more inclined toward electric utilities, representing 26.66% of the fund, though independent power producers and energy traders (25.14%), semiconductor and semiconductor equipment (22.12%), and electrical equipment (15.59%) all receive big chunks as well. The fund appears to be highly concentrated in the top 10 holdings with a share of 50.58%.

Bottom Line

Since the pulse of the alternative energy industry is closely tied to the swings in the macro-economy, until the picture becomes rosier we do not expect to witness many stand-alone alternative energy companies.

Recent moves in the sector have been encouraging, and if these trends continue, there are clearly more gains that can be had for risk-tolerant investors looking for a new play in the space.
 
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MKT VEC-GLBL AE (GEX): ETF Research Reports
 
ISHARS-GL CL EN (ICLN): ETF Research Reports
 
PWRSH-GLB CL-EY (PBD): ETF Research Reports
 
PWRSH-W CL EGY (PBW): ETF Research Reports
 
NASDAQ-CL EDG G (QCLN): ETF Research Reports
 
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