Current Trends Are In Favor of The Global Wind Energy ETF

August 6, 2013 by  
Filed under Green Energy News

wind-farmRenewable sources of energy are fast gaining traction, especially with concerns over pollution and carbon emissions. The world is slowly shifting towards clean energy sources like solar energy, hydro-power, wind power and clean burning natural gas.

Wind energy has gained popularity due to the fact that it supplies clean energy without harming the environment unlike fossil fuels. Though wind turbines are considered costly investments, it uses little land and can be widely distributed and is growing rapidly at more than 25% per annum.

Adoption of wind energy technique provides multiple benefits: The land owners benefit from wind farming as they get good compensation for leasing their land; the company benefits from government subsidies; the environment benefits due to zero-carbon emission; and the society and economy benefit at large.

The U.S. Energy Information Administration (EIA) estimates that by 2040, renewable sources of energy except hydropower will account for 32% of the overall growth in electricity generation. Capital-cost reductions in wind energy (13%) and government support have given a boost to this important resource.

In fact, a research by Bloomberg New Energy Finance (BNEF) predicts that wind and solar will take up the largest shares of new power capacity added in terms of GW by 2030, accounting for 30% and 24% respectively. By 2030, renewable technologies will account for 50% of new power generation capacity installed around the world.

Investor plays

Investors have been betting on clean energy ETFs for years with disappointing results across the board. Many funds in this space have lost in the double digits — if not worse– in years past, as a reduction in government subsidies, low prices for traditional fuel sources, and a general lack demand for these risky companies have combined to dull the investment case for alternative energy ETFs.

Despite all odds, the good news is that investors have seen a bit of a reversal in the clean energy segment so far in 2013. Almost all the stocks in the segment have had a good performance this year, thanks to a growing population, economic growth and better regulations in place which have acted as catalysts to the clean energy sector (see Clean Energy ETFs: The Real Bull Market?).

Wind ETF in focus

Interestingly, recent investor interest in the clean energy space has largely been directed to wind energy ETF. In spite of the fact that the clean energy sector has suffered setbacks over years, this is now an ideal time to invest in this space. Investors who wish a pure play in this challenging and emerging wind energy space, the only available option is reviewed in greater below.

First Trust ISE Global Wind Energy Index Fund (NYSEARCA:FAN)

Launched in June 2008, FAN is a passively managed fund and is the only option available for investors seeking to play in the wind energy space. The fund tracks the ISE Global Wind Energy Index.

The ETF currently holds 51 securities in its basket and mostly comprised of international stocks with European companies taking about two-thirds of the exposure. From a market cap look, it is pretty even among large mid and small caps, although there is definitely a small cap bias in this product.

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