Oil tycoon T. Boone Pickens has been aggressively touting wind power as an alternative energy source, indicating that the wind energy industry may have reached a tipping point in interest and investment. Shortly after the first wind-specific investment became available last month, a new exchange-traded fund, the PowerShares Global Wind Energy Portfolio (Nasdaq: PWND), began offering investors access to a concentrated portfolio of wind energy stocks.
High oil prices provide one reason why investors should consider adding alternative energy to their portfolios. Following in the footsteps of a billionaire like Pickens is a bet that could pay off.
Fund facts
- Inception date: July 1, 2008
- Expense ratio: 0.75%
- Net assets: $2.3 million
Fund specifics
The Global Wind fund is based on an index of companies that manufacture, develop, distribute, and install energy derived from wind sources. The fund has a global securities portfolio with many small-cap stocks that aren't otherwise available on U.S. markets.
However, you'll find a few familiar names. Giant General Electric (NYSE: GE) is a significant holding, while American Superconductor (Nasdaq: AMSC), Composite Technology (Nasdaq: CPTC), and Zoltek (Nasdaq: ZOLT) also play prominent roles. You'll also see several utilities among the fund's holdings, including FPL Group (NYSE: FPL) and Xcel Energy (NYSE: XEL).
Risks
As with other specialized ETFs, Global Wind has a number of risks. With some small global companies included in the portfolio, investors can expect to see things they wouldn't normally see in ETFs that hold only U.S. securities. Greater market volatility, higher transactional costs, taxation by foreign governments, and political instability are just a few of those risks.
Moreover, with only 32 stocks in its portfolio, the fund is highly concentrated and exposed to the wind energy industry. Investors shouldn't consider this as a diversified energy fund. If another energy technology, such as solar, ends up being the alternative energy winner, then this fund will likely suffer.
Portfolio fit?
The Global Wind Energy Council estimates that worldwide installed wind power increased 31% from 2006 to 2007. This was the third year of record-setting growth and is solid evidence of the interest and viability of this energy source. If energy prices fall, that trend could reverse itself and make wind less attractive. But there's no sign of an impending collapse in oil. Investors looking for alternatives to investing in traditional energy stocks should consider the fast-growing alternative energy area for a portion of their portfolio.
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