Thursday, April 8, 2010

Investing in Alternative Energy ETFs, Why They Are Down

Alternative energy is quite popular these days, however, they have not performed well. There are two major ETFs in this sectors.

1. PBW, Powershares Clean Energy

PBW (click for alerts) is down 10.8% YTD and invests at least 80% of its total assets in common stocks of companies engaged in the business of the advancement of cleaner energy and conservation. The ETF invests at least 90% of its total assets in common stocks that comprise an index comprised of approximately 52 companies which are publicly traded in the United State.

2. Global Energy Alternative GEX, 30 stocks, heavily weighted towards solar sector

GEX (click for alerts) is down 7.3% this year. It tracks the Ardour Global Index. The Index is a rules-based, global capitalization-weighted, float-adjusted index that tracks the overall performance of a global universe of listed companies engaged in the alternative energy industry. The Index comprises a globally diversified group of companies engaged in the production of alternative fuels and/or related technologies. Companies eligible for inclusion in Index should be engaged in the alternative energy industry with market cap exceeding $100 million and should have three-month average daily trading price greater than $1 per share.

Performance and charts:

Why has performance been poor? These are some of the reasons:

  • Natural gas is too cheap, so people and companies do not convert

  • Very high initial (fixed) costs for wind, solar, geothermal plants,

  • Still early days, no economy of scale yet

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