- Solar, wind and hydropower are three alternative energy sources being developed. Entrepreneurs set up companies to take advantage of new technologies. Established companies also enter the field and attempt to profit from the innovations. Some companies will succeed, but many will not. It is difficult for an investor to determine which companies will prosper and which ones will fail. Investors can purchase mutual funds or exchange-traded funds (ETFs) and benefit from advances in the field without attempting to project winners and losers.
- Most of the alternative energy funds were created in the 1990s and 2000s. Recessions in the early 2000s and the 2008 financial crisis and subsequent recession hurt the industry. The largest alternative energy ETF is the PowerShares WilderHill Clean Energy ETF (PBW). The ETF had a highly successful 2007, when the fund climbed 58 percent. Economic woes hit, and the fund fell 60 percent in 2008. The fund lagged its benchmark in its attempt to recover over the next few years. The fund invests in wind and solar energy, but it also has assets in fields such as information technology and materials. Many of these companies utilize energy-efficient processes. A lot of the alternative energy funds are similar to PBW and are not solely alternative energy funds.
- There are three ETFs that invest almost all their assets in one specific market sector. The Guggenheim Solar ETF (TAN) invests in the solar energy industry, and the First Trust ISE Global Wind Energy (FAN) ETF purchases wind energy companies. The Market Vectors Alternative Energy ETF (GEX) concentrates its assets in technology and utility companies involved in solar, wind and hydropower.
- The Guinness Atkinson Alternative Energy Fund (GAAEX) invests 50 percent of its assets in solar companies and 27 percent in wind businesses. Most of the fund's holdings are international companies not based in the United States. The Winslow Green Growth Fund (WGGFX) invests in alternative energy and other green industries such as green building and environmental services, but does not specify a percentage of its assets invested in alternative energy companies. The Calvert Global Alternative Energy Fund (CGAEX) invests 80 percent of its assets in companies involved in the alternative energy industry. New Alternatives (NALFX) invests in companies contributing to a clean and sustainable environment. At least 25 percent of its assets are invested in companies in the alternative energy industry.
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