In the first week of 2010, oil prices bobbed above $80 a barrel, once again, since falling below $35 a barrel in the maelstrom of 2008. While doubts persist that the rally in oil–like the economic recovery itself–will be sustained over the longer-term, the fact that oil has traded at prices in excess of $150 a barrel within the last two years would seem to indicate that maddeningly high energy prices are a threat that cannot be completely dismissed.
If oil prices do spike again, clean energy stocks are a likely beneficiary, as their earnings improve dramatically in a high energy-price environment. For companies like biofuel producers, high oil prices are often the difference between profit and loss.
ETFs focused on clean energy companies have been available for almost five years now, and while the first clean energy ETFs were focused on U.S. companies; they are now mostly global in nature–reflecting the growth of wind power equipment suppliers in Europe and solar panel makers in China. Of the dozen clean energy ETFs listed in the United States, nine are global funds. With economic growth in developing markets such as China, India, and Brazil expected to far surpass that of the developed world, these funds may be able to reap larger gains than those exclusive to the United States.
These global clean energy ETFs generally hold about 30 different stocks and charge between 0.65% and 0.75% in annual expenses, with about 30% of their assets held in U.S.-based companies. While many hold the same companies, their overall portfolios reflect a healthy variety of industry and regional exposures, giving each its own unique character.
Three broad-based clean energy funds hold the lion's share of the sector's assets. The Van Eck Global Alternative Energy Fund (GEX), with $212 million in assets, has the largest U.S. allocation at 42%, followed by Spain and Denmark with about 10% each. Its top three holdings are Danish wind turbine manufacturer Vestas Wind Systems (VWS), Arizona-based thin-film solar cell maker First Solar Inc., (FSLR), and North Carolina-based LED lighting manufacturer Cree Inc., (CREE).
PowerShares Global Clean Energy Portfolio (PBD), is the most diverse fund, with its $207 million in assets spread across 87 different holdings. About 25% of its assets are in U.S.-based companies, with China and Germany accounting for 10% each. Its three largest holdings–each less than 3% of the fund–are Vestas Wind Systems, its Spanish rival Gamesa (GAM), and Belgian wind gear box manufacturer Hansen Transmissions (HSN).
