One segment of the stock landscape that has produced incredible gains for investors over the past year is undoubtedly the ‘green’, or clean energy, ETF market. Products in this corner of the investing world have easily crushed broad benchmarks by a wide margin.
That is because names in this space are riding a wave of positive sentiment as companies ranging from ‘traditional’ solar providers to electric car makers are now seeing profitability. And with plenty of share left to be captured—not to mention broad concerns over pollution and other environmental issues—there still could be plenty of room left to run in the space (see all the Alternative Energy ETFs here).
While things have been going well in the green energy market lately, there have definitely been some issues in the volatile industry. In particular, concerns from China are really hitting the space hard as of late.
This is because China is a big producer and consumer of a number of green energy products, and with some uncertainty hitting their economy lately, some have begun to sell-off alternative energy ETFs and stocks. The pain could intensify if the worries escalate in China, though investors will have to see what kind of a stimulus package (if any) comes out of the market.
However, even with these China concerns, many ‘green’ ETFs in the alternative energy space appear to be primed for strong long-term performance. In fact, the recent dip could be a great buying opportunity, and especially if you look at any of the following three ‘buy’ ranked funds below, which could definitely lead the way in this important market segment:
PowerShares Global Clean Energy Portfolio (PBD – ETF report)
This ETF tracks the WilderHill New Energy Global Innovation Index which is an equal weighted benchmark of 100 stocks in the clean energy world. The fund charges investors 75 basis points a year in fees, while it has added just under 20% in the past three month time frame.
The focus of the fund is on companies that zero in on greener and generally renewable sources of energy, as well as technologies that facilitate cleaner energy. This allows the fund to hold a wide range of companies, including electric car maker Tesla (TSLA – Analyst Report), solar power companies, and firms in the technological side of the clean energy market as well (see A Beginner’s Guide to Alternative Energy ETFs).
The product has a skew towards technology (37%) and industrials (32%), while utilities (18%) also receive a sizable allocation. In terms of countries, the U.S. makes up about one-third of the portfolio, followed by China (15%), and Germany (7%).
PBD currently has a Zacks ETF Rank #2 (Buy), while it has added over 55% in the past one year.
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN – ETF report)
QCLN gives investors exposure to the NASDAQ Clean Edge Green Energy Index which is a modified market cap weighted fund that includes a cap to prevent high concentrations in big stocks. The ETF charges investors 60 basis points in fees, while it has moved higher by over 22% in the past three months.
Once again, the focus is on clean energy companies across a wide range of industries, including solar power, biofuels, advanced batteries, as well as the installation of new technological systems. TSLA takes the top spot here at just over 12.5% of assets, followed by Linear Technology and Cree in the next two spots at just over 7.2% of assets each (read A Comprehensive Guide to Alternative Energy ETFs).
Technology takes up over 37% of the portfolio, while the energy sector takes the second spot at over 22.65% of assets in this 40 stock portfolio. U.S. stocks dominate this fund, so foreign issues look to be less of a problem here.
The ETF currently has a Zacks ETF Rank #1 (Strong Buy) while it has added close to 82% in the past one year time period.
Guggenheim Solar ETF (TAN – ETF report)
For a concentrated bet on the solar industry, investors have TAN which zeroes in on the MAC Global Solar Energy Index. This benchmark holds about two dozen stocks in its basket, charging investors 70 basis points a year in fees, though it has seen its value increase by over 36% in the past three months.
Companies in the semiconductor space dominate this ETF, as they account for over 80% of the basket. GTAT, REC, and SUNE take the top three spots, and despite such a low number of holdings, no company makes up more than 7% of assets.
The fund is pretty spread out from a country perspective though, as the U.S. takes up just 28% of the assets, second to China and their 30%. Meanwhile, large caps only make up 6% of the portfolio, so volatility should be expected in this product.
Even still, the fund has performed amazingly well in the past year, adding more than 160% in the time frame. And with a Zacks ETF Rank #2 (Buy), this trend definitely could continue in the near term (see all the top Ranked ETFs here).
Many securities in the green energy world have seen weakness in recent trading sessions as China concerns have weighed on the space. The segment is prone to volatility though, and big moves in short time periods aren’t out of the norm.
And with the positive trends still in place across the industry this could make for an interesting buying opportunity. So this St. Patrick’s Day, consider these green ETFs for exposure, as all three have ‘buy’ ranks and appear well-positioned to lead the market again once this turmoil subsides.
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