So Christmas went by without a hitch, now all that’s left to be done is prepare for the New Year. Well that and sort out your presents, the trickiest of which is a $5,000 gift from your wealthy uncle with the specification that the money must be used to Invest in a green energy company. What company do you choose? None.
With the sector of green energy being in its infancy it is nearly impossible to determine which companies will thrive and which companies will falter (think dot coms). Depicting where government subsidies and restrictions will be in the upcoming years is just as cloudy. So instead of taking your $5,000 gift and placing it into a few companies with the hope of getting a winner, the answer is exchange-traded funds.
An exchange traded fund is a security that features the tradability of a stock, coupled with the coverage of an index fund. So, instead of investing in say Trina Solar LTD (ADS) because the future of clean energy seems bright to you, take that money and invest in PowerShares WilderHill Clean Energy Portfolio (PBW) which is the largest green ETF (Trina Solar LTD accounts for 4.41% of the ETF’s weight and is the largest holding). This particular ETF has invested in 52 companies which tend to be small companies in the business of fuel cells, solar, semiconductors, basic materials, and utilities.
Let’s say that you don’t believe in all green energy but only solar energy. No problem, look to the Claymore/MAC Global Solar Index ETF (TAN). This ETF holds 30 companies that produce solar power equipment, fabrication companies that make solar panels, solar cell manufacturers, and companies that install, distribute and integrate solar into energy solutions.
With a little research you can find many ETF’s ranging in many green energy selections. Your money will then be diversified among numerous companies that increase the chances you will hold what becomes the industry leader and likely revolutionary company creating promising returns for you.
Things to look at once you find the fuel cell ETF or wind power ETF (whatever section of ETF you want) are the top ten holdings of the ETF, and check these with the key players in the sector. ,Also, note the number of overall holdings, an ETF with five holdings might not be the place for your money. The expense ratio is another thing you should note. You will be able to find many with a ratio below one percent.
In review, consider you receive $5,000 from you rich Uncle Dana. He prescribes that it must be invested in green energy. Taking this sum of money and sending it to perhaps 3 ETF’s (fuel cells, solar, and wind) not only diversifies your money among three top sectors of green energy and numerous companies within each aspect giving you the ability to see the growth within the sector reflected within your portfolio but will simultaneously relegate the failure of one company or impact of a government decision on five companies to an infantile loss.
Written by Benjamin H. Childers.