When it comes to alternative energy sources, wind power is perhaps one of the most popular choices, as numerous countries across the globe have taken steps to ween themselves off of fossil fuels. Wind power involves harnessing the natural energy of the wind and converting and storing this energy into a useful form. Although the alternative power source is not considered to be a traditional commodity, it has been able to hold its ground in the financial universe, seeing as how its future development could have a major impact on other commodities [for more wind news and analysis subscribe to our free newsletter].
Since direct investments in wind are not possible, investors have turned towards equities to access this useful and potentially lucrative segment of the energy market. And thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this alternative energy source. Below, we outline the two most popular wind energy ETFs and which one will fit your investment objectives.
First Trust Global Wind Energy (NYSEARCA:FAN)
Quick Stats (10/9/2012)
- Total Assets: $20.6 million
- Average Daily Volume: 14,000
- Expense Ratio: 0.60%
- In Depth: FAN Analyst Report and ETFdb Realtime Rating
First Trust’s FAN is by far the largest option for investors looking to gain access to this intriguing alternative energy segment. Since inception in 2008, the fund has accumulated over $20 million in total assets, but its average daily trading volume is rather low at only 14,000 shares. The cleverly-named fund tracks an index that allots a third of its total assets to firms that provide goods and services exclusively to the wind energy industry, while the remainder of the portfolio consists of companies that are not exclusive but are deemed to be significant participants in the industry. The fund is nicely distributed across companies of different market capitalizations, giving it a nice diversity. In terms of country allocations, FAN has significant weightings towards Spain, the U.S., Germany, and Denmark, but also features exposure to several Asian nations and emerging markets [see also Why Alternative Energy Will Never Become Widespread (In Our Lifetime)].
FAN is Right for You if: You are a cost-conscious investor looking to gain exposure to wind energy equities that are geographically well-diversified and stretch across different market cap sizes.
PowerShares Global Wind Energy Portfo (NASDAQ:PWND)
Quick Stats (10/9/2012)
- Total Assets: $9.5 million
- Average Daily Volume: 3,600
- Expense Ratio: 0.75%
- In Depth: PWND Analyst Report and ETFdb Realtime Rating
PWND is the only other wind energy ETF option available on the market, but its popularity among investors has been seemingly lacking. The fund has only accumulated $9.5 million in assets since inception in 2008. In regards to market capitalization, PWND has a tilt towards mid-cap stocks, which account for over 40% of the fund’s total assets. The fund does however, feature a larger allocation to emerging markets than its competitor, making it an appealing option for investors looking to add potential growth benefits to their portfolios. Powerhouse wind energy producer China dominates PWND’s underlying holdings, but allocations to Spain, Denmark, the U.S., and Italy are also significant. For those cost-conscious investors, PWND might not be the right choice of funds, since its expense ratio comes in 15 basis points above FAN’s.
PWND is Right for You if: You are an investor looking to achieve exposure to the wind energy market, but want to a greater allocation to emerging market equities.
This article was originally written by Daniela Pylypczak, and posted on CommodityHQ.