With negotiators from 195 countries meeting for the 2015 United Nations Climate Change Conference in Paris, France, alternative energy equity mutual funds may be poised to rise in 2016. During the summit on Nov. 30, 2015, Bill Gates announced an initiative called the Breakthrough Energy Coalition, which includes 28 investors from over 10 countries. As activists push for alternative energy, companies in the sector may see demand for their products. This may lead to higher earnings and a rebound in some alternative energy companies' market values.
Alternative energy equity mutual funds provide investors with professionally managed exposure to many companies involved in various clean energy-related business activities such as solar, hydrogen, wind, geothermal and hydroelectric. Investors who want to gear up for the potential rise in alternative energy stocks should consider these mutual funds.
Fidelity Select Environment and Alternative Energy Portfolio
The Fidelity Select Environment and Alternative Energy Portfolio (FSLEX) was issued by Fidelity Investments on June 29, 1989. As of Nov. 30, 2015, FSLEX has generated an average annual return of 3.96% since its inception. It has generated an annualized return of 7.53% over the past five years and an annualized return of 12.84% during the past three years. With the ongoing discussions of climate change, FSLEX is poised to rise over the long run. However, FSLEX has a historical annualized standard deviation of 12.94% and is theoretically 9% more volatile than the market.
The fund is advised by Fidelity SelectCo LLC, and subadvised by FMR Co. Inc. and other investment advisers. When compared to similar funds, FSLEX charges a relatively low annual net expense ratio of 0.92%. To invest in FSLEX, a $2,500 minimum investment is required.
FSLEX seeks to achieve its investment objective by investing at least 80% of its total net assets in common stocks of companies involved in business activities related to renewable and alternative energy, pollution control, recycling technologies, energy efficiency or other services supporting the environment.
As of Oct. 31, 2015, FSLEX's top five industry allocations are 15.08% auto parts and equipment, 12% aerospace and defense, 9.24% industrial machinery, 8.95% industrial conglomerates and 8.12% electrical components and equipment. As of Sept. 30, 2015, FSLEX allocates 57.2% of its portfolio to its top 10 holdings.
Guinness Atkinson Alternative Energy
The Guinness Atkinson Alternative Energy Fund (GAAEX) was issued by Guinness Atkinson Funds on March 31, 2006. GAAEX has a high annual net expense ratio of 2.02%, while the median expense ratio of its Morningstar category of specialty no-load funds is 1.45%. GAAEX is advised by Guinness Atkinson Asset Management Inc. and requires a minimum investment of $5,000. GAAEX's high annual net expense ratio and minimum investment requirement may not be suited for the average investor.
GAAEX's investment objective is to provide long-term capital appreciation. To achieve its investment objective, GAAEX invests at least 80% of its total net assets in equity securities of U.S. and foreign alternative energy companies. The fund's top industry allocations are 41.47% wind, 26.97% solar, 14.07% efficiency, 10.42% hydro, 4.13% geothermal and 2.73% biofuel.
As of Sept. 30, 2015, based on trailing three-year data, GAAEX has an annualized volatility of 27.59%. When measured against the WilderHill Clean Energy Index, GAAEX's benchmark index, it has an annualized alpha of 0.54, R-squared of 0.72 and Sharpe ratio of 0.32. Therefore, GAAEX has outperformed its benchmark by 0.54% over the past three years, and 72% of GAAEX's past price movements can be explained by its benchmark index.
Firsthand Alternative Energy Fund
The Firsthand Alternative Energy Fund (ALTEX) was issued on Oct. 29, 2007, by Firsthand. ALTEX is advised by Firsthand Capital Management Inc. ALTEX has a moderately high turnover rate of 57%; therefore, it charges a high annual net expense ratio of 2%, while the median expense ratio of its Morningstar category of specialty no-load funds is 1.11%. The fund requires a minimum investment of $2,000. As of Sept. 30, 2015, the fund has total net assets of $6.3 million and holds 35 common stocks of alternative energy companies.
ALTEX seeks to provide long-term capital appreciation by investing at least 80% of its total net assets, under normal market conditions, in alternative energy and alternative energy technology companies. ALTEX's top five industry allocations are 33.3% renewable energy, 11.1% other electronics, 8.70% energy efficiency, 8.40% semiconductors and 8% advanced materials. Its top five holdings are 7.10% SolarCity Corporation, 6.70% First Solar Inc., 6.50% Power Integrations Inc., 6.30% SunPower Corporation and 5.70% Cree Inc.
When measured against the S&P 500 Index, ALTEX has a beta of 1.66 and an R-squared of 0.47. Therefore, it is theoretically 66% more volatile than the S&P 500 Index. Additionally, 47% of its past price fluctuations can be explained by movements in the S&P 500 Index.
New Alternatives Fund Class A
The New Alternatives Fund Class A (NALFX) was issued in 1982 by New Alternatives Fund Inc. NALFX is the first environmental mutual fund and the first mutual fund to concentrate its portfolio allocations to alternative energy. It is advised by Accrued Equities Inc. and charges an annual net expense ratio of 1.12%, which is less than the median of its Morningstar category of world stock front-load funds. To invest in NALFX, a minimum investment of $2,500 is required.
NALFX seeks to provide long-term capital appreciation by investing at least 25% of its total net assets, under normal market conditions, in equity securities of alternative energy companies. Based on New Alternatives Fund's 2015 semi-annual report, its industry allocations are 64.5% renewable energy power producers, 9.30% wind turbines, 3.50% energy storage, 1.30% solar photovoltaic, 7.50% energy conservation, 5.90% sustainable energy financial services, 4.90% water utilities, 0.30% water related and 2.80% other assets.
Shelton Green Alpha Fund
The Shelton Green Alpha Fund (NEXTX) was issued by Shelton Capital Management on March 12, 2013. Since NEXTX is a fairly new mutual fund, it is best suited for highly risk-tolerant sophisticated investors. NEXTX is advised by Shelton Capital Management and subadvised by Green Alpha Advisors LLC. The fund charges an above-average annual net expense ratio of 1.36%, while the median expense ratio of its category of mid-cap, no-load funds is 1.07%.
NEXTX invests in common stocks of companies that its subadviser deem to be leaders in managing environmental opportunities and risks, have above-average growth potential and are not overvalued. The companies selected by its subadviser are part of a proprietary group of green economy companies.
While NEXTX is not a pure alternative energy fund, it allocates a large portion to companies in the sector. As of Sept. 30, 2015, its top-five sector allocations are 25.67% industrial, 22.6% technology, 14.94% utilities, 13.6% consumer noncyclical and 11.06% consumer cyclical. Its top-10 equity holdings include Vestas Wind Systems A/S, First Solar Inc., Canadian Solar Inc. and SolarCity Corporation.