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Alternative Energy ETFs Winning Favor

These funds should continue to fare well


With stocks down the past two days in reaction to the tragic events in Japan, one sector has seen impressive gains, namely alternative energy exchange-traded funds, which invest in companies focused on solar, wind, biofuels.

On Tuesday, the Market Vectors Global Alternative Energy (NYSE:GEX) ETF was higher for a second straight day, as was the First Trust Global Wind Energy (NYSE:FAN) ETF.  The Guggenheim Global Solar (NYSE:TAN) and Market Vectors Solar Energy (NYSE:KWT) ETFs also posted back-to-back gains.

With the world fixated on news images of smoking reactors in Japan, there’s every chance these funds will continue to fare well.  

For the moment, alternative energy ETFs remain relatively small – the largest, TAN, has roughly $168 million in assets. You can opt for one of two overarching strategies for investing in them: Buy a diversified alternative energy ETF or focus on a particular technology, such as solar or wind. Both strategies minimize risk by giving you a grab-bag full of companies, of course.

But let’s suppose that instead of investing across the entire alternative energy space, you liked wind energy best.  After all, you might say, it’s renewable, it’s relatively low tech and it’s already in widespread use.

Even more important than your own opinions, however, is the fact that wind energy recently received some important backing from the White House. It’s an example of the old axiom — follow the money. On Feb. 7, Secretary of the Interior Ken Salazar and Secretary of Energy Steven Chu introduced a strategic plan to speed development of offshore wind energy. The pair also made available up to $50.5 million  “for projects that support offshore wind energy deployment and several high priority Wind Energy Areas in the mid-Atlantic  that will spur rapid, responsible  development” of the region’s offshore wind-energy resources. 

The key words in the statement above are” mid-Atlantic,” that is, the coastal waters bordering the nation’s most populous and power-hungry regions; “rapid,” which you could construe as windmills, even those operating in harsh ocean environments, that can be erected faster than coal-generated power plant; and as for statement’s use of the word “responsible,” die-hard environmentalists may disagree, but windmills turning from ocean breezes pose little or no harm to people or the ecosystem.

You could make what is perhaps an equally good argument in support of solar, which makes sense in the nation’s sun-drenched Southwest. The Department of Energy, hedging its bets, likes solar, too. Last December, the department handed out $400 million in loan guarantees for plants that would produce solar panels in Colorado and Indiana. According to the statement, the plants “will use new manufacturing technology for Cadmium-Telluride panels that has never before been deployed commercially in the world. At full capacity, the project will be capable of producing 840 megawatts of solar panels each year.”

In making its funds available, the Department of Energy is working to fulfill a mandate to generate 80% of America’s electricity via clean-energy sources by 2035. It’s a mandate that will likely stay in place at least while Obama remains in the White House. Coupled with Japan’s nuclear disaster, it could bode well for the holdings of alternative energy ETFs.    

At the time of publication, Mark Ingebretsen did not hold any of the funds named in this article.

Article printed from InvestorPlace Media,

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