Making Green From Green ETFs
GREEN ETFs
The marriage of environmental innovation and investing innovation has created a library of “green” ETFs (exchange traded funds) investment opportunities on the world’s stock markets.
In 2009, investment returns in clean energy ETFs generally performed well, but did not outperform the technology-heavy NASDAQ index. That is not to say that all green ETFs underperformed relative to the index. Indeed, solar and wind company stocks generally performed poorly, relative to the industry as a whole. Investors clearly were concerned about over-stock and a deep price drop over the prior 18 months.
On the flip side, storage and smart grid technologies outperformed, largely attributable to government support for that sector. BYD Company, and energy storage company supported by Warren Buffet investment, rose 439% last year, while energy efficiency company EnerNOC rose 308%.
Exchange Traded Funds are a relatively new investment vehicle, with the first ETF arriving on the Toronto Stock Exchange in 1989, followed soon after by similar funds in the USA. Basically, ETFs allow investors to bet on specific sub-sections of an index, such as in energy, materials, REITs, and a variety of emerging technologies.
Until recently, though, access to those green funds was hindered significantly, because most of those alternative energy companies were only listed on foreign stock exchanges, and not generally accessible.
The introduction of a range of global ETFs, though, has opened access to the less volatile ETF packages, allowing individuals to put in funds much like they do with mutual funds or individual stocks. Unlike index funds, ETFs can be bought and sold throughout the trading day, instead of just at day’s end. This flexibility is particularly attractive for those who prefer instant reaction to the day’s dynamics.
In much the same way that investors have been able to choose ethical funds in which to invest, people wishing to focus on environmentally responsible and alternative energy portfolios may pick ETFs that represent their preferences and values.
Online companies like Sustainable Business.com provide excellent guides to selecting the most appropriate stocks and ETFs for your preferences. You may choose from specific subsectors, such as wind, solar, water, or any of more than a dozen other categories. Concerned about gray-area eco-stocks? You can carve out carbon-trading ETFs from your list of prospects. Need to know that the ETF will focus on specific regions of development, or small & mid-sized companies as opposed to larger, international operations? There are green ETFs that segment into specific countries, and large or small-cap investments.
In any event, the decision to invest in environmental ETFs may be a wise one, given the emphasis that all governments are placing on eco-responsibility, and the rapid pace with which new green technologies are metamorphosing. And, you may minimize the risk of putting all your eggs in one basket, by selecting ETFs with diverse holdings, and varying, from large to small, the size of each green ETF investment
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