Loading the player...

DEFINITION of 'Alternative Energy ETF'

An exchange-traded fund (ETF) that invests in companies engaged in industries serving alternative energy production and research. Some companies found within alternative energy ETFs may only receive a portion of their revenues from alternative energy goods and services, while other (typically smaller) companies are wholly engaged in alternative or clean energy production. The underlying group of securities used to passively invest assets within these funds varies widely depending on the issuer. Some include many stocks while others have a narrower focus and are thus less diversified.

BREAKING DOWN 'Alternative Energy ETF'

ETFs focused on alternative energy stocks represent a strong "green" investment.  It's also an increasingly viable one, as countries and corporations pledge to power more and more of their activities with renewable energy, designed to invest broadly in securities that drive or depend on demand for particular kinds of renewable power. Alternative energy has two important tailwinds funding its growth: the limitation of the world's natural resources and higher demand by environmentally conscientious consumers. Wind and solar usage in the United States and China, the world's two biggest energy consumers, is already increasing steeply.

Nevertheless, most green industries, like wind, solar and hydro energy, are still in their technological infancies, and are still developing profitable business models. Therefore, investors should expect to see high volatility as certain processes and technologies rise to the forefront while others prove to be unsuccessful. ETFs are a safer option than trying to predict the fortunes of individual companies. 

Some alternative energy ETFs try to represent clean energy in its broadest sense by diversifying their holdings among many kinds of clean energy. These include the PowerShares WilderHill Clean Energy ETF (PBW), the S&P Global Clean Energy ETF (ICLN), the Nasdaq Clean Edge Green Energy Fund (QCLN), and Market Vectors' Global Alternative Energy ETF (GEX). Most of these funds were launched during a mid-to-late 2000's boom in alternative energy ETFs, and they tend to spread their holdings across wind, hydro and solar power, as well as investing in information technology and renewable electricity. Of these, the WilderHill fund is the oldest (launched in March of 2005 by Invesco) and at just under $110 million, has the most net assets.

Many other alternative energy funds focus on specific alternative energy industries. In terms of net assets, the biggest alternative energy fund in the world, as of 2016, is the Guggenheim Solar Energy ETF (TAN), launched in 2008. One of the best options for wind energy is the ISE Global Wind Energy Index Fund (FAN).

Investors looking to gain a stake in clean or alternative energy sources should keep a close eye on developments in the energy sector; technologies are constantly changing, and every year brings new opportunities for investing in clean energy.

RELATED TERMS
  1. Energy Sector

    The energy sector is a category of stocks that relate to producing ...
  2. Alternative Investment

    An alternative investment is an atypical asset not traditionally ...
  3. Internet of Energy - IoE

    The Internet of Energy (IoE) refers to the automation of electricity ...
  4. Barrel Of Oil Equivalent (BOE)

    A barrel of oil equivalent (BOE) is a term used to summarize ...
  5. SEC Form 45b-3

    SEC Form 45b-3 was used to file with the SEC concerning extensions ...
  6. Green Tech

    Green tech is technology that is considered environmentally friendly ...
Related Articles
  1. Investing

    Top 5 Alternative Energy ETFs for 2018

    ETFs that focus on alternative energy have not produced positive returns but these five show promise.
  2. Financial Advisor

    How to Invest in Clean Energy via ETFs (PBW,ICLN)

    Clean energy is heating up. Here are some ETFs for your watch list.
  3. Investing

    Big Buys In Renewable Energy

    As oil prices have fallen, so has the alternative energy sector. For investors with a long-term focus, the time could be right to add the sector to an energy portfolio.
  4. Managing Wealth

    Clean Or Green Technology Investing

    Innovations in energy and consumption grow as companies adopt them to reduce costs.
  5. Investing

    Top 4 Alternative Energy Companies for 2018

    These companies are world leaders in alternative energy and offer a relatively stable investment opportunity.
  6. Investing

    VDE: Vanguard Energy ETF

    Discover the type of investment strategy the Vanguard Energy ETF follows, and learn why it may be an appropriate addition to an investor's portfolio.
  7. Investing

    Top 4 Alternative Energy Stocks as of July 2018

    Some alternative energy stocks are making positive moves and could prosper in the second half of 2018.
  8. Investing

    Saudi’s Aramco in $5B Renewable Energy Investment

    OPEC's largest crude producer plans to deploy billions as its largest oil co. eyes renewable energy.
  9. Investing

    How Low Oil Prices Affect Alternative Fuels

    Cheaper oil may make renewable energy sources such as solar and wind power less attractive.
  10. Tech

    Amazon Announces Its Largest-Ever Renewable Energy Project

    The Seattle company has five renewable energy projects to power data centers in its cloud business. A shift to renewable energy sources should drastically cut energy bills at these centers.
RELATED FAQS
  1. What are the main substitutes for oil and gas energy?

    Read about some of the major substitute sources of energy that compete with fossil fuels -- oil, natural gas and coal -- ... Read Answer >>
  2. What exactly is an ETF portfolio?

    Learn what exchange-traded funds (ETFs) are and their advantages to investors, what a portfolio of ETFs is, and discover ... Read Answer >>
Trading Center