Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global clean energy companies to your portfolio, the S&P Global Clean Energy Index ETF (ICLN 3.68%) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The clean energy ETF's expense ratio -- its annual fee -- is a relatively low 0.48%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF's performance has been dismal so far, as it has lost to the world market over the past three years. The future counts more than the past, though, and as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why global clean energy?
Interest in alternative energies has been around for a long time, but it seems to finally be gaining some traction. The solar energy industry has taken a beating lately, though, leaving some investors finding it more attractive than it was before.
Few global clean energy companies had strong performances over the past year, but their futures could be different. Trina Solar (NYSE: TSL), based in China, sank some 49%, suffering in part due to a supply glut there and plenty of competition. One upside for Trina is its products' relatively high efficiency. Its balance sheet is stronger than those of many peers, as well.
First Solar (FSLR 3.34%) also has a relatively strong balance sheet. Still, the stock dropped by 48% over the past year, as the company faces tough competition, supply-and-demand issues, threatened government subsidies, and ever-changing technologies. Recent third-quarter results weren't pretty, analysts worry about falling margins and a shrinking backlog, and the stock is heavily shorted. Bulls have high hopes for its projects in emerging markets such as India.
Fellow solar concern GT Advanced Technologies (NASDAQ: GTAT) shrank by 45%, and the company announced a massive 25% downsizing of its workforce as it reorganizes. Still, its emerging HiCz technology should make solar even more efficient and cost-effective. To some, the long-term prospects for GT Advanced are solid.
Cia Energetica de Minas Gerais (CIG 1.74%), otherwise known as Cemig, is a Brazil-based electrical energy utility. It only shed 3% over the past year, but that's because it's not quite as focused on alternative energy as some others. Though it generates much energy from hydroelectric power, it has invested in natural-gas operations, too. The company took a hit when the Brazilian government announced plans to cut power costs. Still, it has been posting solid revenue and income growth, and also offers a 5.2% dividend yield.
The big picture
Demand for alternative energy isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
