Top 3 Alternative Energy ETFs

There is no doubt that with technological advances, a shift will eventually occur from fossil fuels towards alternative and sustainable energy sources. In this article, we are going to explore 3 ETFs that invest in alternative energy companies. The most popular in this category of companies is Solar energy, along with Wind, Geothermal, and Hydroelectric. Investing in these companies is not only a responsible and environment-friendly way of making money, these ETFs have been able to outperform the market this year!

#3 - TAN

Guggenheim Solar ETF tracks MAC Global Solar Energy Index. This year, Solar energy is the best performing segment of the alternative energy category and has great potential for the future. TAN currently has 27 securities in its portfolio, more than $400 million in assets, and an expense ratio of 0.71%. The performance of this ETF has been impressive this year, with YTD return of 44.66% (S&P 15.30%). With a weighted average P/E ratio of 13.46, TAN has a lot of room to grow. It is worth noting that this ETF was incepted on April of 2008, and financial crisis hit it pretty hard and it fell more than 80%. Even after crisis, this fund could not consistently move upwards. At the time of this article, TAN is 90% cheaper than its IPO price, so if Solar industry booms, now is a decent entry point.

#2 - PBW

PowerShares Wilderhill Clean Energy ETF invests in US companies that are engaged in clean energy business. PBW has 38 holdings, $109 million in assets, and an expense ratio of 0.70%. This fund has some other clean energy companies in its portfolio along with Solar energy companies. This year has been a good year for PBW, with YTD return of 34.34% (S&P 15.30%). Its P/E of 42.23 is higher than TAN, mainly because it has more small companies in the early stages of development. When you go back in its chart, a similar story is evident; it fell over 75% during 2008 crisis from its high of 2007, and currently it is 68% cheaper than its IPO price.

#1 - PZD

PowerShares Cleantech ETF tracks the leading global clean technology companies, from a broad range of industry sectors. The Cleantech Index is a modified equally weighted index composed of stocks (and ADRs of such stocks) of publicly traded cleantech companies. This ETF has 52 holdings, $132 million in assets, and an expense ratio of 0.68%. Only 57% of its portfolio is in the US, the rest are European clean technology companies. PZD also has performed quite well this year, with YTD return of 32.30% (S&P 15.30%). The past performance of this ETF, however, tells a different story than the previous two ETFs; it has already passed its pre-crisis highs. After falling 60% in the 2008 crisis, it rebounded strongly, and with a 190% gain since 2009 it is now 72% higher than its IPO price. 

To summarize, TAN is focused on Global Solar energy, PBW is focused on US clean energy, and PZD is focused on Global clean technology. If you want to invest in alternative energy companies, these 3 ETFs give you enough exposure to companies in that segment. I personally like PZD, because its performance has been impressive over long term, and it is better diversified than the other two. 

Disclosure: At the time of this publication I have no position in any of the ETFs mentioned. This publication is NOT intended as financial advice. Published statements are opinions only.