Clean Energy ETFs offer unrivalled growth opportunity

Oct 25th, 2011 | By | Category: Equities

The consensus among the scientific community is that unless we take drastic action to reduce the level of global carbon emissions, the earth’s climate will warm irreversibly. This in turn will have a lasting and broad-ranging impact on society, ecology and the global economy.

Clean Energy ETFs offer unrivalled growth opportunity

Few industries are likely to match the earnings growth potential of clean energy in the coming decades.

Scientists have forecast that a seemingly innocuous rise of just two degrees will cause droughts in some parts of the world and floods in others. Extreme weather will displace populations and cause shortages of food and water. Ultimately, the lives of everyone will be disrupted.

To some, these forecasts may sound exaggerated. However, the Cancun Agreement last year showed that the majority of the international community accepts this prognosis and recognises the enormity of the challenge we face.

In response to this challenge, governments around the world have shifted legislation in favour of renewable energy and against fossil fuels, and have committed vast financial resources – the US alone has committed $150 billion of investment into clean technology industries over the next decade.

Many countries have also committed themselves to ambitious carbon reduction and clean energy targets. The UK, for example, has a target of 20% of energy consumption to come from renewable sources by 2020.

A similar targets-based approach is being taken in China, the fastest-growing source of carbon emissions. Despite its reputation for polluted skies, China is actually a leader in clean energy investing. The Communist Party’s latest Five-Year-Plan – which reiterated the commitment to invest in environmental sustainability – should build on this leadership.

Elsewhere around the world, national, regional and city governments, along with corporations of all sizes, are pursuing cleaner, greener policies – those who are taking the lead are already seeing the benefits.

The investment opportunities are huge and varied, and include power generation sources such as wind, solar, tidal, biomass, hydro and geothermal; and technologies relating to carbon-capture, electrification, recycling, greywater and fuel cells. This list merely scratches the surface of potential opportunities.

Climate change is set to become one of the defining issues of the next few decades. The policy and regulatory environment is going to be a boon for green technology investing, as companies across conventional industries scramble to realign their carbon intensity and enhance energy efficiency.

Few industries are likely to produce as many companies with significant earnings growth potential as the ‘clean energy’ industry in the coming decades.

With the performance of clean energy funds caught up in the market-wide sell-off and impacted by the general economic malaise, now could represent an opportune moment to buy in at attractive valuations.

There are a number of exchange-traded products available to investors seeking to exploit this theme, including:

PowerShares Global Clean Energy ETF which tracks the WilderHill New Energy Global Innovation Index comprised of companies worldwide whose innovative technologies and services focus on generation and use of cleaner energy, conservation, efficiency, and advancing renewable energy generally.

Osmosis Climate Solutions ETF which tracks the Osmosis Climate Solutions Index comprised of global companies which derive 50%+ of revenues from products and services focused on the efficient use of natural resources and mitigation of climate change.

iShares S&P Global Clean Energy ETF which provides exposure to the 30 largest and most liquid listed companies globally that are involved in clean energy-related businesses.

Amundi Green Tech Living Planet ETF which tracks the Living Planet Green Tech Europe Index which overweights companies that generate at least 20% of their revenues from green/renewable sectors, while excluding non-green and “unethical” companies.

EasyETF FTSE Environmental Opportunities 100 which tracks 100 largest global companies by market-cap that generate at least 20% of their business from involvement in environmental activities, including renewable & alternative energy, energy efficiency, water technology and waste & pollution control.

ETFX DAXglobal Alternative Energy ETF which tracks the performance of approximately 15 alternative energy companies generating more than 50 percent of their revenues in one of the following five sub-sectors: Natural Gas, Solar, Wind, Ethanol, Geothermal/Hybrids/Batteries.

Credit Suisse Global Alternative Energy ETF which tracks a proprietary index offering investors exposure to thirty of the largest companies involved in the wind, solar, bioenergy/biofuels, natural gas and geothermal energy sectors.

DB X-Tracker S&P US Carbon Efficient ETF which tracks the performance of no more than 375 US-based companies with relatively low carbon emissions (as measured by Trucost Plc), while seeking to closely track the return of the S&P 500, its parent index.

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