A Clean Energy ETF
03/17/2006 12:00 am EST
Carlton Delfeld, a leading expert on exchange traded funds, maintains a New Venture ETF portfolio that includes positions in "forward-looking" sectors. Here, he looks at a "clean energy" ETF and explains its benefits for those seeking a diversified play on alternative energy.
"There is a new breed of ETFs on the market called Powershares, which builds indexes based on intelligent models. In short order, it has rolled out a flurry of forward-looking ETFs. Our New Venture ETF Portfolio, which is built around Powershares, is already up over 12% this year. One of our portfolio holdings is Powershares Wilder Hill Clean Energy (PBW ASE).
"This exchange traded fund is a basket of 41 companies that focus on greener and renewable sources of energy as well as the technologies that facilitate cleaner energy. These companies also make up the Wilder Hill Clean Energy Index. The Clean Energy ETF was launched in March, 2005 and was up 4% for the year. It has jumped over 30% so far in 2006.
"The top ten companies in the index account for 34% of the total exposure and the average market cap of companies in the ETF is $2.4 billion. 62% of the companies are categorized as small cap growth and 18% are mid-cap growth. Some 77% of the companies in the ETF are from industrial and information technology sectors. Industrials, including a number of fuel-cell and solar-panel makers, account for 37% of the fund's assets.
"Its second-largest concentration is 30% in information technology. Its largest holding, at 4.1% of assets, is the carbon-fiber maker Zoltek (ZOLT NASDAQ). The next top four weighted companies are Energy Conversion Devices (ENER NASDAQ), Suntech Power Holdings (STP NYSE), Sunpower Corp. (SPWR NASDAQ), and Hydrogenics (HYGS NASDAQ).
"With an annual expense ratio of only 0.60%, this Clean Energy ETF is a great way to place a diversified bet on the future of alternative energy without trying to figure out which companies have the best technology and prospects. In addition to low fees and diversification, investors also gain from tax efficiency (No capital gains distribution in 2005) plus transparency. I encourage clients to couple traditional energy ETFs such as the iShares S&P Global Energy (IXC ASE) with this Clean Energy ETF in order to play both sides of the fence."