You can call an oil company, a green company (although oil is a fossil fuel and its burning pollutes the environment) if it is following good business practices which are less harmful to the environment. But I am referring the Green Company is the one which is having its business directly or indirectly related to the alternate energy sector. The green energy sector is suited for all those investors who look for long-term returns. As I research & write about green energy especially the solar energy, therefore people ask me about the routes of investing in the green energy.
(1) Routes to the Investing
Well, like any other sector, the green energy has also 3 routes to investing and these are as follows:
(2) Explaining the term ETF
Before going further, let me explain the basics of the ETF. The ETF (Exchange Traded Fund) is a marketable security which experiences a price change just like a stock in the stock exchange and it can be bought and sold like any other security in the exchange. The ETF have generally higher liquidity and lower transaction cost than the mutual funds and hence it can be a good option for the retail investor. As it trades like a stock, therefore, it does not have any NAV attached to it like the mutual fund which is calculated at the end of the day.
The ETF is a fund which owns the assets like shares of alternate energy companies. When an investor is buying an ETF he/she is actually investing in a bundle or group of securities trading in the stock exchange which represents a particular sector like if you are investing in alternate energy ETF then it means you are investing in companies which are engaged in the business of alternative energy like solar, wind, geothermal, biogas, etc.
(3) The advantages of having an ETF
The demand for the alternate energy resources is increasing despite the fall in the oil prices. This trend is showing that correlation of the rise in demand with the rise in the price of oil is losing its relevance and now the people are tilting towards the alternate energy as the source of energy. Moreover, the renewable is receiving more funding than in past which clearly shows the rise in demand of renewable in the near future. The cost of the renewable is falling continuously year after year making is technically feasible and economically viable energy option. This clearly shows that the renewable energy has the potential to be the biggest and the largest industry in the coming time ahead. So by investing in the Green ETF, you are not only diversifying your investment portfolio but also indirectly spreading your energy portfolio.
(4) The top green ETFs
The TOP Green ETFs are as follows:
VanEck Vectors Global Alt Energy ETF (GEX)
It belongs to the fund family of Market vectors and closely follows the performance of the Ardour Global Index SM. The fund invest 80% of its total assets in the businesses which are engaged in promoting alternative energy, means generating power through environment-friendly sources.
Its top 10 holdings are as follows:
iShares Gobal Clean Energy ETF (ICLN)
It tracks the performance of the S&P Global Clean Energy Index. It follows the performance of 30 most liquid and tradable companies which are engaged in the clean energy business.
The top 10 holdings are as follows:
First Trust NASDAQ Cln Edge Green Energy ETF (QCLN)
It tracks the performance of Nasdaq Clean edge Green energy index which invests 90% of its total fund in alternative energy stocks. The top 10 holdings are as follows:
Power Shares Global clean energy ETF (PBD)
It seeks investment results which refer to the WilderHill New Energy Global Innovation Index. The fund invests 90% of its assets in the companies which are engaged in the advancement of the cleaner energy.
The top 10 holdings are as follows:
First Trust ISE Global Wind Energy ETF (FAN)
This fund tracks the performance of ISE Global wind energy Index. This fund invests 90% of its total assets value in the companies all over the world of the Index which are actively engaged in wind energy space. Its top 10 holdings are as follows:
I have listed the Top ETFs but not necessarily in the order which is mentioned above are the ones which invest in the green energy companies and can be a good investment opportunity for the retail investor from a long-term point of view or you can design your own ETF by choosing from the group of green companies. These funds are well diversified and you can see that they are investing in the top companies across the world. Although, the oil prices are falling but the renewable energy has created its own space in the energy sector whose demand is growing with each passing year and whosoever is investing in this sector is going to benefit from it, if s/he is looking at the long-term investment horizon.