Market Pulse: The prospects of green energy investing
June 11, 2014
Today's global economy relies heavily on affordable and available energy. Just five years ago it looked like we'd see a price spike as fossil fuels were in very short supply.
Fracking changed that picture (more on that in next week's article). All forms of energy production are needed to fuel the economy, including green energy like wind and solar. Green energy is good for the environment, and lately it's been good for investors' portfolios.
The U.S. Department of Commerce added import duties on Chinese solar panels. A tax was placed on imports because China is subsiding its solar companies, which artificially lowers the price of solar panels. While China may retaliate, this action helps U.S. solar companies.
Instead of buying one or two solar companies, investors can diversify across the industry by owning Guggenheim Solar ETF (TAN).
Its top ten holdings represent about 60 percent of the portfolio, with First Solar being the largest holding. Its expense ratio is a somewhat high 0.70 percent. Guggenheim Solar ETF is volatile. From March to May it fell 25 percent. Despite that, it is up 17 percent this year, well ahead of most other sectors.
Wind energy stocks are also doing exceptionally well this year. The First Trust Wind Energy (FAN) is up 16 percent. The ten largest holdings represent 60 percent of the portfolio and are mostly international stocks.
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The largest holding is Vestas Wind Systems, based in Denmark. The ETF's expense ratio is 0.60 percent.
Clean energy currently accounts for 16 percent of all U.S. electric generation and most expect that to rise significantly over the next decade.
If that's the case, then solar and wind powered ETFs should be good investments to supplement a portfolio that should already be over-weighted with energy issues (more on that in upcoming weeks). They are super volatile, but their prospects are good.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.