by Vic Patel

There are over a dozen major Clean Energy ETFs available to investors. But which one is the best one to put your hard earned money into? Best can mean different things to different people based on their investment preferences and risk profile.

In this article, I will provide a more empirical based reason behind why I believe that PZD is the most attractive Clean Energy ETF at the moment. I have based on my analysis of 4  primary factors: liquidity, diversification, recent price action, and last but not least expense ratio.

Liquidity has to be a major consideration in the selection of any financial asset. The lack of sufficient liquidity can lead to wider bid ask pricing, and difficulty in efficient trade execution

Top 5 Most Liquid Clean Energy ETFs (based on 3 month Avg. Daily Volume)

TAN –   135,000
PZD –    7,512
ICLN –   79,979
PBW –   13,373
QCLN –   15,318

Since I always want to reduce risk through diversification. ETFs with a larger numbers of holding and a lesser concentration in the top 10 are the most  diversified. So, next, I  analyzed the number of holdings within each ETF and the concentration of its’ top 10 holdings. You will find the results of that below.

Number of holdings

PZD                 51          (31% concentration in top 10 holdings)
PBW                 40         (36% concentration in top 10 holdings)
ICLN                31         (55% concentration in top 10 holdings)
QCLN               39         (57% concentration in top 10 holdings)

Clear Winner:  PZD

From here, I took a look at the price chart of each ETF on our list. What I primarily wanted to see for each was where the current price was trading in relation its 200 period moving average. The 200 period moving average is a widely watched metric by technical traders, in particular retail trend traders. When price is above the 200 period moving average, this group tends to stay on the long side of the market, and when price is below the 200 period moving average they opt to stay flat or on the short side of the market.

This can sometimes bolster prices or place additional pressure on the price of the ETF depending on the where price is trading in relation to this 200 MA. As such, we want to align our position with that order flow whenever possible. So, when prices are trading above it, it is considered a bullish sign. And contrary to that, when prices are trading below the 200 period moving average, it is considered a bearish sign. Essentially, I wanted to filter out any of these ETFs that were trading below their 200 period moving average.

PZD, PBW, and QCLN made the cut, as each was trading above its 200 period moving average. ICLN and TAN however needed to be filtered out due to their trading below its 200 period moving average.

So now we are down to three. The final piece of analysis involved comparing each of the remaining three ETFs to see how their Expense Ratios measured up. The results are below:

Expense Ratio Comparison

PZD     .68
PBW     .70
QCLN   .60

The expense ratios seem to be relatively similar for all three, so there is no clear winner or loser there.

Conclusion

So here what PZD (Invesco Cleantech ETF) has going for it and the reason I believe it is the best Clean Energy ETF to buy:

• PZD is a relatively liquid ETF.
• PZD has the largest number of holdings and the least concentration in the top 10% of its holdings.
• PZD is trading above the 200 period moving average.
• PZD has a reasonable expense ratio based on its peer class.

This market analysis was done by Vic Patel, He is an experienced trader with over 20+ year in the markets. He also runs a popular trading blog at Forex Training Group.

**Data Source – ETFDB.com

The post Screening For the Best Clean Energy ETF appeared first on Alternative Energy Stocks.

This list was last updated on 4/27/2022.

ETFs are Exchange-listed funds which pool investor’s money for the purpose of making Alternative Energy investments. Exchange Traded Funds (ETFs) track a specified Alternative Energy index. This list also includes closed-end mutual funds and other pooled investments which trade on exchanges.

ALPS Clean Energy ETF (ACES)
ASN Groenprojectenfonds (ASNGF.AS)
Bluefield Solar Income Fund (BSIF.L)
Defiance Next Gen H2 ETF (HDRO)
Evolve Funds Automobile Innovation Index ETF (CARS.TO)
First Trust Global Wind Energy Index (FAN)
First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund (GRID)
First Trust NASDAQ Clean Edge Green Energy Index Fund  (QCLN)
Foresight Solar Fund Limited (FSFL.L)
Global X Lithium ETF (LIT)
Global X Uranium ETF (URA)
Global X Renewable Energy Producers ETF (RNRG), (formerly YLCO)
Greencoat Renewables Fund (GRP.IR)
Greencoat UK Wind PLC (UKW.L)
Harvest Clean Energy ETF (HCLN.TO)
Invesco Global Clean Energy ETF (PBD)
Invesco MSCI Global Timber ETF (CUT)
Invesco Solar ETF (TAN)
Invesco Wilderhill Clean Energy (PBW)
iShares Global Timber & Forestry Index Fund (WOOD)
iShares Self-Driving EV and Tech ETF (IDRV)
iShares S&P Global Clean Energy Index ETF (ICLN)
iShares S&P Global Nuclear Energy Index (NUCL)
KraneShares Electric Vehicles and Future Mobility Index ETF (KARS)
KraneShares Global Carbon ETF (KRBN)
NextEnergy Solar Ord (NESF.L)
Pickens Morningstar® Renewable Energy Response ETF (RENW)
SPDR Kensho Clean Power ETF (XKCP)
The Renewables Infrastructure Group Limited (TRIG.L)
Triodos Groenfonds NV (TRIGF.AS)
VanEck Vectors Low Carbon Energy ETF (SMOG)
Van Eck Nuclear Energy ETF (NLR)
Van Eck Rare Earth/Strategic Metals ETF (REMX)

If you know of any alternative energy ETF or ETP that is not listed here, but which should be, please let us know in the comments.  Also for funds in the list that you think should be removed.

Thanks to Peter Smit for his extensive suggestions for updates to this list.

The post List of Alternative Energy and Clean Energy ETFs appeared first on Alternative Energy Stocks.

Tom Konrad, CFA

When I called the peak a year ago, it was too soon for the broad market, but not for clean energy stocks.  I think both have room to fall, but clean energy may bottom first. 

Almost a year ago at the start of June, I wrote saying “we’re near the peak” of the stock market.  I was too early, and admitted it in August.  But I also said that it was a bad time to be in the market: the risks of a decline far outweighed the potential gains of remaining in an overvalued market.

Since the start of May, investors are once again realizing that not all is right with the economy, and the market can go down as well as up.  I’m willing to go out on a limb again and say I think the market has a lot farther to fall from here, and I expect the S&P 500 to be below where it was when I made my call (at 945.)

What Was I Thinking?

When I made my call, it was based on the feeling that all the stocks I watch (almost exclusively clean energy) had come too far, too fast, and were overvalued.  My mistake, it seems, was extrapolating from what was going on in my sector to what was going on in the market as a whole.

Consider this chart comparing the performance of a domestic clean energy ETF (PBW), a global clean energy ETF (ICLN), and the NASDAQ and S&P500 broad market indexes (click for full sized chart):

While the broad market indexes continued to rise until late April this year, the S&P Global Clean Energy Index (ICLN, in red) peaked at $26.00 shortly after my call.  The Powershares Wilderhill Clean Energy Index (PBW, in blue) had a minor peak at $11.37  at the same time, but went on to scratch out another 5% gain by early January 2010 before turning decisively down.

ICLN is now down 31% from its peak, while PBW is down 22% from its minor peak following my market call. 

What Went Before

You’ll also note that in the three months leading up to my call, clean energy had been strongly outperforming the broad market indexes.  I became nervous as I saw stock valuations rise too far, too fast in my own sector, and I made the mistake of generalizing that personal experience to the market as a whole.

Over the last year, I have become increasingly bearish about the broad stock market.  In August of 2009, I wrote that I had shifted my portfolio into a market-neutral stance.  I’ve had an overall short position since September 2009, and have encouraged readers to get out of the market or take short positions since then.  Most recently I wrote at the end of April that it was time to “double down” on puts to hedge against market exposure or gamble on a market decline.

The Future

I still believe that the market is overvalued.   However, because of the declines in clean energy stocks, I am starting to see individual companies that are decent values.  On May 16, I profiled one such example, CVTech Group (CVT.TO, CVTPF.PK.)  I think it’s still too early to begin buying even these reasonably valued stocks.  If we have the broad market decline that is looking increasingly likely, reasonably stocks are likely to get caught in the downdraft, and fall further until they are incredible bargains.

Those bargains, I feel, are now just a matter of months away.  (Time will show the accuracy or inaccuracy of that prediction, too.)

DISCLOSURE: No positions.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

The post A Year Later: Market Up, Clean Energy Down appeared first on Alternative Energy Stocks.

Tom Konrad, CFA

In Green Energy Investing for Beginners, Part I, gave information to guide the choice of green investment vehicles (mutual funds, ETFs, or stocks.) This article is intended to help investors decide how much of their money to put into those vehicles.

An informed decision of how much to invest in green energy is at least as important as how you make the investment.  The choice between green Exhange Traded Funds (ETFs) and green Mutual funds rests on a difference of about one percent per year, caused by differences in fees.  Yet in the first three quarters of 2009, the S&P 500 (general stocks) returned 17%, ICLN, a green ETF returned 21%, and my ten green stocks for 2009 returned 41%.  With differences between performance as large as 20-30% a year (green stocks did much worse than the market as a whole in 2008,) the decision between investing 10% of your portfolio or 60% of your portfolio in green stocks will make a large difference (8% to 12%) in your total returns for the year, far more of a difference than how you invest.  The other important factor will be sector selection within green energy.  I believe that the main reason my Ten Green Stocks for 2009 have done so much better than the benchmarks is because I emphasized sectors I believed would benefit from the stimulus package.  At that time, the stimulus was  only something that I (and other green commentators) were predicting as part of Obama’s response to the financial crisis (He had not yet been sworn in.)

Your Allocation Decision

How much of your savings you put into green energy will depend on two things:

1. Your risk tolerance and market expectations.
2. Why you are investing in green energy in the first place.

Market Expectations

Most people should not try to time market moves.  Endless studies have shown that small investors tend to put their money into the market near market peaks (1999 or 2007, for instance) and withdraw that money near troughs (2002 or early 2009.)  The economics of supply and demand make this inevitable: the more people want to buy stocks, the higher demand for stocks is, and the higher prices rise.  The more people who want to sell stocks, the larger the supply of stocks is, and the lower stock prices will fall.  

This may sound like circular reasoning (do stock prices peak because buying peaks, or does buying peak because stock prices peak?), but circular reasoning is the only way to understand stock prices. The price-setting mechanism itself is circular.  George Soros called this "reflexivity" in his classic book on market trends, The Alchemy of Finance. Most people want to buy when they see prices rising, causing prices to rise more.  Most people want to sell when they see prices falling, causing prices to fall more.

Hence, most people will get market timing wrong, and that is why your investment advisor is always telling you not to time the market.  However, understanding the psychological mechanisms which cause most people to be wrong about market timing can let a minority of investors take advantage of these predictably irrational decisions.  

Since June, I have felt that we’re near a market peak, and have not changed my mind because of the market advance since then.  If you are reading this in late 2009, and the market has not fallen significantly since the writing (the S&P closed at 1042 today), I feel it would be irresponsible to suggest that anyone buy green stocks today, without a suitable market hedge.  Hedging is beyond the scope of this discussion, but I have outlined five simple hedging strategies here.  If you want a portfolio that is greener even than the green stocks, ETFs, or mutual funds, you might consider hedging with shorts on some of the least green companies.

All further discussion in this article assumes that either:

1. You have chosen not to time the market.
2. You have faith in your own predictive ability, and believe the market will continue to rise, OR
3. Your portfolio will be hedged against major market moves.

Risk Tolerance

Many green energy investments are more volatile than other sectors.  This is because the majority of green energy stocks are not yet profitable, and do not have the internal cash to see them through hard times.  This can force companies to raise money from the financial markets when those markets have fallen, and will cause the stock prices to fall further in market declines.  Such stocks are especially concentrated in the domestic and specialty green ETFs, such as PBW, TAN, and KWT.  Most of the green energy mutual funds, and the international green energy ETFs such as ICLN and PBD are less volatile due to a higher concentration of established companies.

Investors can deal with the greater volatility of green energy in several ways:

1. Stick to the less volatile green energy investments.
   1. Stock investors can emphasize profitable green companies over unprofitable ones.  Almost all of my 10 for 2009 picks referenced earlier are profitable companies, and those that are not currently profitable had a history of profitability prior to the financial crisis.
   2. Stick to the less volatile ETFs that contain a broad base of profitable global companies, instead of the more volatile domestic ETFs.
2. When hedging your portfolio, use a larger market hedge than you would otherwise.  The method I outline in my hedging strategies article automatically incorporates this adjustment.
3. If replacing an allocation
   of normal stocks with an allocation of green stocks in a larger portfolio,
   1. Replace an equally volatile sector allocation with your green energy allocation, or
   2. If replacing an allocation to ordinary stocks, replace part of that allocation with less volatile bonds, and part with green energy stocks.

Investment Motivation

It makes sense that the more confident you are that green energy will outperform other sectors, the more money you should allocate to it.  Keep in mind, however, that almost everyone has a strong overconfidence bias.  That is, we believe we are going to turn out to be right a lot more often than we actually do.  This bias persists even when we are aware of overconfidence bias.  Even when we tell ourselves, "I feel that X has a 95% probability of happening, but I know I’m likely to be over-confident, so I’ll act as if the probability is only 80%," it usually will turn out that the real probability of X was even lower than our 80% revised estimate.  

Hence, we should only let our confidence in green energy have a small influence in our overall allocation decision.  Like market timing, this is another rule that I honor in the breach: my entire stock portfolio is in some way related to green energy.  In ten or twenty years, we’ll find out if I actually know what I’m doing, or am just overconfident like most everyone else.

    Motivation: Doing the Right Thing

If your main motivation for investing in green energy is to be more environmentally responsible, you are faced with a trade-off: the more you invest in green energy, the more volatile your portfolio will become.  However, feeling better about your investments may make you more comfortable with the added volatility.  This may allow you to hold more green energy because of your increased risk tolerance. 

However, if you don’t believe that green energy will outperform, there are less risky ways to do the right thing.  You could instead replace your stock holdings with companies that are more green than most companies in their sector.  In a recent paper by Meir Statman and Denys Gluskov entitled "The Wages of Social Responsibility", the authors found that socially responsible investment managers were able to achieve higher returns by favoring "best of class" companies in each sector, a process they described as socially responsible "tilt."  In contrast, they found that completely shunning sectors such as alcohol and firearms led to lower returns over time.  Based on theses results, there is a win-win available for environmentally responsible investors who want to do the right thing: they can rebuild their entire stock portfolio by keeping the same sector allocations they had made before the change, but replacing the stocks in each sector with the greenest stocks from lists such as Newsweek’s rankings of the 500 largest US Corporations that I wrote about in September.

    Motivation: Fighting Climate Change

If your motivation for investing in green energy is to fight climate change, you must balance the trade-off of increased risk from concentration in one industry, with your expectation that that industry will produce higher long-term returns because of increasing regulation of greenhouse gasses, and support for alternative energy.  In general, I find it very difficult to predict which companies are going to benefit from climate change regulation.  Will politicians choose to subsidize solar, wind, biofuels, or energy efficiency?  Will carbon credit giveaways create a windfall for utilities and other large emitters of greenhouse gases. 

Not being able to predict politicians, I instead choose to focus my investing based on the (clearly false) assumption that politicians will do (roughly) the right thing. While I know this assumption is wrong, I also know I don’t know in which direction my assumption will be wrong: the idea is that the ideal political action averages out all the likely errors that politicians are likely to make along the way.  How do we know what the ideal actions are?  We look at reports from relatively unbiased sources that recommend particular actions.  I recently wrote two articles based on an article from two economists that looked at what Modern Portfolio theory has to say about the best technologies for climate mitigation (here and here.)

In terms of how much of your portfolio you should devote to fighting climate change, if that is your motivation, it should depend on how quickly you expect the effects of climate change to occur.  The biggest gains from a climate change focused portfolio will occur as more and more political leaders stop being able to ignore the urgency of responding to climate change.  I personally feel that this will be triggered by the increasing frequency of climate-related disasters, caused by the increasing severity and frequency of unusual and dangerous weather events such as hurricanes, droughts, floods, and blizzards.  This is something that I already see happening, but I don’t expect it to be obvious to the many people who want to ignore the effects of climate change for another 5-15 years.  

Based on your own belief of when you expect this political transition to occur, you should only allocate money to climate change mitigating investments if you do not need to withdraw that money before the expected political change is likely to occur.  In some ways, this political change has already begun, and money is being awarded to deserving green energy firms.  However, investors should not ask what has already happened, but what unexpected changes are likely to occur.  The unexpected (by most other investors) change that I expect is the realization that Climate Change will not only be a serious problem, but that it will be a serious problem in our lifetime, and that it’s worth risking damage to the economy by devoting massive resources to the project of combating it.

In my case, my investment horizon is about 20-30 years, which is longer than the 5-20 I expect for the political change, so I consider fighting climate change as a good motivation to increase my portfolio’s allocation to green energy.

    Motivation: Peak Oil

The connection between fossil fuel prices and the performance of green energy stocks is tenuous at best.  Investors should not expect their solar stocks to go up or down with the oil price.  After all, we do not yet have a fleet of plug-in vehicles which might let us substitute electricity from solar for gasoline from oil.  Hence, investors motivated by peak oil should stick to green energy sectors which reduce the need for liquid transportation fuels.  These sectors include biofuels, hydrogen fuel cells, technologies which make transportation more efficient, and technologie
s such as batteries which enable the electrification of transport. 

Like climate change, how soon you expect to see the effects of peak oil should affect how much money you invest.  I feel that the effects of peak oil in terms of the reduced affordability of gas and diesel are already upon us.  This does not just mean high oil prices (which we have), but decreasing ability to purchase oil due to the economic disruption and contraction caused by those prices.  Low oil prices make our economies vibrant, which provide the money needed to buy oil.  High oil prices cripple the economy, which in turn means that we’re less able to buy oil at any price.  This is what I mean be "reduced affordability."

In a recent report, "The Peak Oil Market," Deutsche Bank predicts that post peak, both oil prices and oil demand will fall due to the introduction of disruptive technology: plug-in vehicles (Thanks Nate Hagens.)  If they’re right, investing in oil or oil companies is not the best way to profit from peak oil, but rather the potential disruptive sectors.  Of the sectors I mention above, efficient transportation, hydrogen, and electrification are the only ones that can possibly scale to replace a significant portion of our fossil fuel demand.  Biofuels are limited by the available supply of biomass.  Biomass can more efficiently power a vehicle when burnt to produce electricity to charge an electric vehicle’s battery than when converted into liquid fuels for an internal combustion engine.  A similar efficiency argument applies to hydrogen, although breakthroughs in electrolysis and fuel cell technology could change this.  However, I don’t consider betting on possible technological breakthroughs a sound investment strategy.  After all, even if a breakthrough occurs, it’s at least as likely to come from a new player than an industry incumbent.

Batteries will need some technological breakthroughs in order to make plug-in vehicles economical enough to displace gasoline.  However, the needed improvements to the electric grid needed to accommodate electrified transportation (as suggested in the Deutsche Bank report) can be accomplished with existing technology.  Hence, investors motivated by peak oil should be looking to investments in transport efficiency, transmission and smart grid stocks.

In terms of how much to invest in these strategies, it probably should be a lot (at least if you believe as I do that the peak in oil production has either already happened, or will happen soon), and it should probably be accompanied by a hedge using shorts in oil intensive industries such as airlines.  The hedge is necessary because a peak in oil supply will hurt the world economy, and is likely to make stock prices as a whole fall, quite possibly even the stock prices of the companies which are working to displace oil with disruptive technology.  However, it is a good bet that these companies are likely to fare better than companies whose economics depends on the large scale consumption of cheap oil.

Conclusion

Your goals, expectations, and risk tolerance will affect both how you invest in green energy, and how much you invest.  Before you make any decisions, answer these questions for yourself:

1. Do I believe investing in green energy is the right thing to do? Will this help me bear the pain of declines in my portfolio?
2. How soon will Climate Change reach the top of the political agenda?  Do I have the time to wait for the expected investment returns?
3. How soon will oil production peak?  Do I have time to wait for the expected returns?
4. How confident am I about my answers?  Do I have reason to be confident, or is my confidence based on self-delusion?

Knowing the answers will help guide your investment allocation.  

I don’t currently have plans for more articles in this Green Investing for Beginners series.  If you feel there’s something I still need to cover, please leave comments here.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

The post Green Energy Investing For Beginners, Part II: How Much To Invest appeared first on Alternative Energy Stocks.

Vacation and Meet Me at the Colorado Renewable Energy Conference or the International Peak Oil Conference.

Tom Konrad, Ph.D., CFA

I’m on vacation this week, so I’m going to leave you with a preview from a presentation I will be giving at the Colorado Renewable Energy Conference on Aug 29 in Golden Colorado. I’m updating my Investing in Renewable Energy presentations, and I’ve been able to incorporate a lot of the work Charles and I did on clean energy mutual funds and ETFs since January this year.

ETF Holdings Revealed

Charles did some in-depth work looking at the holdings of the ETFs this spring, and I turned it into this graph (click for the high-res version):

Looking at the holdings data, I’ve changed my favorite clean Energy ETF to QCLN, since it has a moderate expense ratio, and has more exposure to some of my favorite Clean Energy subsectors: Energy Efficiency, Clean Transport, Batteries/Electricity Storage, and Geothermal than my previous favorite, ICLN, which I picked mainly because of the expense ratio.  However, I think QCLN underweights clean transport and wind more than I would like, so another good option for larger portfolios would be a portfolio of 80% QCLN and 10% each of FAN and PTRP.  I prefer FAN to PWND because FAN is more focused on the wind supply chain, while PWND has more of a focus on wind park operators (Power Production.)

Evidence of a Clean Energy Fund Bubble

I also updated my chart of the number of clean energy mutual funds from March to reflect the closure of the Airshares EU Carbon Allowances Fund (ASO):

If that does not look like a bubble (in clean energy funds) I don’t know what does.  It just goes to show that solid fundamentals do not prevent bubbles… solid fundamentals are often the foundation on which bubbles build their castles in the sky, to mix a metaphor.  However, if you do have solid fundamentals (as I believe clean energy does) the popping of the bubble just sets the stage for years of healthy growth. 

Presentations on Stock Picking

That’s not the core of the presentation, but I like to cover mutual funds and ETFs when talking to a general audience of Alt Energy enthusiasts.  The real meat of the presentation, for me, is picking clean energy stocks.  For that, you’ll need to wait for future articles, or come to my presentation at CREC, or the Saturday, October 10 workshop "Survive and Thrive After Peak Oil: Creating Personal Plans for the Coming Decades" at the ASPO 2009 International Peak Oil Conference, October 10-13 in Denver, CO.

At the ASPO conference, I’ll skip the mutual fund stuff altogether, and spend more time on the how-to’s of stock-picking.  

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

The post Vacation, Updated Graphs, and 2 Conferences appeared first on Alternative Energy Stocks.