The Best Green ETF
posted on: November 12, 2007 | about stocks: PBD / PBW / GEX / QCLN / PZD
With oil closing in on $100 and the possibility of triple-digit prices becoming a norm in the future, energy stocks will not be the only beneficiaries. Think green!
Investors have the option of buying individual stocks in companies that are engaged in anything from solar power to fuel cells. This has been a lucrative investment strategy recently, however the risk of putting money into a single company can be very high in the alternative energy arena. One way to circumvent the company-specific risk is to buy a basket of green stocks through an ETF.
There are at least six ETFs that track indices linked to alternative energy. The PowerShares family of ETFs have four options for investors, which can be very confusing. Market Vectors and First Trust have also thrown their hat into the ring. With all six made up of different stocks it is important to research each ETF before putting your hard earned money into one of them. Below is our breakdown of the possibilities.
The PowerShares Global Clean Energy ETF (PBD) invests on companies that focus on green and renewable energy sources around the globe. Of the 83 holdings, only 26% comes from the US – a good thing. The top holding JA Solar (JASO) accounts for 4% and the entire top 10 makes up 37% of the ETF. The index which the ETF is based on has a 5-year annual return of 34%, the best of the group.
Targeting the same area as PBD is the Market Vectors Global Alternative Energy ETF (GEX). The major difference is that GEX invests in a mere 30 stocks and its top 10 holdings total 69%. The performance of GEX will rely heavily on its to holdings and offer increased reward along with higher risk. The ETF has 30% in the US and its number one holding is Vesta Wind Systems (14%).
PowerShares Wilderhill Clean Energy ETF (PBW) has the same strategy as PBD, except it only invests in stocks traded on a US exchange. There are ADR's in the ETF, however the restriction limits PBW from being one of my top choices. There are a number of attractive green companies not traded in the US.
The First Trust NASDAQ Clean EDGE ETF (QCLN) and PowerShares Cleantech ETF (PZD) focus on the "cleantech" sector and are composed of a large amount of solar stocks. Recent blockbuster earnings from First Solar (FSLR), the top holding in both ETFs, have helped the performance of both. PZD and QCLN have a little international exposure, but are limited to stocks traded in the US.
In the end, if one "Green" ETF had to be chosen it would be PBD due to its international exposure and diversity through a large number of holdings.