A new conversation for business.
The global market for wind energy grew by a staggering 32% in 2006 and 41% in 2005. Meanwhile the U.S. solar photovoltaic market grew by 33% last year despite supply chain constraints, but if you live in California, this may seem like a modest estimate to you. That landscape of energy production is shifting, creating some green investment opportunities (in both meanings of the word green). The Guinness Atkinson Alternative Energy fund (GAAEX) for example has a year-to-date return of 35.75% as of September 30th, while the New Alternatives fund (NALFX) has a 31.6% year-to-date return as of September 30th. Calvert launched the Global Alternative Energy Fund (CGAEX) in June and has experienced a 15.6% return.
One downside to these mutual funds is that their fees are pretty high. The A shares of NALFX and CGAEX have a purchase charge of 4.75% as well as an annual operating expense of between 1.25%-1.85%. The GAAEX however does not charge a purchase charge and has an operating expense just below 2%.
Exchange traded funds can be a nice alternative for folks looking to invest in renewable energy without high fees. Because there is a transaction fee associated with this purchase, it is important to keep those fees in check. Powershares Capital Management’s Global Clean Energy fund, Van Eck Global’s Global Alternative Energy fund and the First Trust NASDAQ Clean Edge US Liquid fund were all created earlier this year. They have annual fees ranging from 0.4%-0.65%. Share must be purchased through a broker, so purchase fees depend on the broker.
The skeptic may wonders what the holdings are of such funds. Are there some "clean coal” stocks stuck in there? My findings didn’t reveal anything too suspicious. The New Alternatives fund gives a complete list of holdings with a brief description of each, not just the top holdings. The list includes renewable energy manufacturers, energy efficient products, and environmental consultants. Gradually there are more options seem to be growing for how to fuel an energy revolution.
You should mention that many private portfolio management firms such as ours do hold several Solar and Geo-thermal stocks. In addition, you should mention that the share prices of Alt Energy companies are vulnerable to several issues:
1. New stock offerings - these will dilute existing shares.
2. A potential glut in silicon wafer production that will impair silicon producers.
3. The price of fossil fuels. There is a close price correlation in Alt. Energy prices and fossil fuels.
4. Worldwide economic strength: If the world's economies slow down, the price of oil will drop as well - hence the domino effect of potentially decling Alt. Energy share prices.
5. Questionable accounting practices: recently a Chinese Solar stock suffered a steep decline when a disgruntled former accountant questioned their inventory practices. When it comes to questionable accounting: its "sell first ask questions later"
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