Feel Fabulous While Investing By Going “Green”

NBC is doing “Green” week on all of its networks so I thought this would be a good time to discuss how you, as an investor, can invest in companies that are contributing to the environment (instead of destroying it.)

Before the advent of ETFs, you either had to invest in a mutual fund that sort of invested in the areas you were interested in, or you had to invest in specific companies themselves. But who knows which companies are all that good in, say, solar power? That’s why “green” ETFs are a smart play.

Powershares has started several ETFs that directly invest in several “green” areas such as energy conservation, water, and alternative energies.

Cleantech Portfolio (Ticker PZD)

The Cleantech Portfolio ETF focuses on companies engaging in energy conservation and efficiency. The portfolio was introduced in October of 2006. Since inception, the fund is up 28.76% compared to the Nasdaq at 15.21% and the S&P 500 at 12.83% during that time period. From the Powershares website:

The PowerShares Cleantech Portfolio (Fund) tracks the Cleantech Index™, which is designed to identify cleantech companies with the greatest capital appreciation potential within the cleantech industry. A company is considered to be part of the cleantech industry if it produces any knowledge-based product or service that improves operation, performance, productivity or efficiency, while reducing costs, inputs, energy consumption, waste or pollution.

The portfolio holds 48 different companies including First Solar, Siemens, Tetra Tech and Corning from six different sectors. Those sectors include: Utilities, Materials, Information Technology, Industrials, Health Care and Energy. The information technology sector is among the larger sectors, probably because those companies are trying to formulate new energy conservation and efficiency methods. There are also quite a few solar energy companies.

Water Resources Portfolio (Ticker PHO)

I’ve talked a lot about water in recent weeks. Clearly, it’s going to be an important resource for the world going forward. Since inception in December 2005, the Water Resource Portfolio is up 21.42% compared to the S&P 500 up 13.04% and the Dow Jones Utility Index up 12.61%. From the Powershares website:

The PowerShares Water Resources Portfolio (Fund) is based on the Palisades Water Index™. The Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption. The modified equal weighted portfolio is rebalanced and reconstituted quarterly.

The portfolio holds 35 companies with its largest holding being Tetra Tech. It also holds such mainstays such as General Electric and Emerson Electric. I think it’s hard to come up with “water” companies, per say. If you’re cleaning the water or somehow involved in consuming it, you get in the ETF.

WilderHill Clean Energy Portfolio (Ticker PBW)

This seems to be among the more popular of their “green” ETFs. This ETF invests in those seeking out alternative energy sources. Since its inception in March 2005, its up 15.73% compared to the Nasdaq at 11.11% and the S&P 500 up 11.45%. From the Powershares website:

The PowerShares WilderHill Clean Energy Portfolio (Fund) seeks to replicate, before fees and expenses, the WilderHill Clean Energy Index, which is designed to deliver capital appreciation through the selection of companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy.

The portfolio’s largest holding is Sun Power Corp. It has 42 holdings, many of them in solar, battery and alternative fuel companies. But the portfolio also holds such common names as Applied Materials and Air Products & Chemicals.

This is the portfolio for you if you are really interested in investing in alternative energy plays such as solar power.

WilderHill Progressive Energy Portfolio (Ticker PUW)

This portfolio differs from the Clean Energy ETF in that it invests in companies that are trying to move away from the use of fossil fuels- such as Toyota with its electric cars. Toyota is one of the portfolio’s holdings. Much of the portfolio emphasizes alternatives to oil and gas use. The portfolio is up 17.74% since its inception in October 2006, compared with the 15.21% gain in the Nasdaq and the 12.83% gain in the S&P 500 during the same period of time. From the Powershares website:

The PowerShares WilderHill Progressive Energy Portfolio (Fund) is based on the WilderHill Progressive Energy Index. The Index is comprised U.S.-listed companies that are significantly involved in transitional energy bridge technologies, with an emphasis on improving the use of fossil fuels. The modified equal-weighted portfolio is rebalanced and reconstituted quarterly.

Fuel Tech Inc is the fund’s largest holding. Out of the 47 holdings, you’ll find some common names like Honda, Johnson & Johnson and Energizer Holdings Inc. There are also a bunch of uranium and semiconductor companies.

Which one is right for you?

It depends on what your investment goals are. The Water Resources Portfolio is heavily weighted in industrial companies (over 65% of the portfolio) and utlities (another 16%). Investing in it might not be getting you the “true” water companies you really want to invest in.

The ETFs with the greatest trading volume are the Water Resources Portfolio (PHO) and the WilderHill Clean Energy Portfolio (PBW). Both pay a slight dividend (under 1%.)

The WilderHill Clean Energy Portfolio is probably closer to what most people think of when they think of investing in “green” companies. These are the companies that are on the cutting edge for solar power, electric power, wind power and anything that is an alternative to oil and gas. If you’re interested in trying to save the earth from global warming (and hate Big Oil and filling up your gas tank every week)- then the Clean Energy Portfolio is for you.

Is “green” a passing fad? Not likely. I think it’s here to stay. There is only so much oil to go around and we’ve seen what fossil fuel consumption can do to our environment. But you should be careful in what companies you invest in. Green is “hot” right now. For instance, First Solar, in several of the portfolios (Ticker: FSLR), has soared from $23 to $159 in the last 52 weeks. It is up again just today as they just announced the they signed $1 billion dollars worth of contracts. The stock, however, is trading at a nose-bleed 167 times earnings. It’s clearly not for the faint of heart. Beware!

But overall, ETFs are a good way to diversify into the “green” investing arena- and to make money while doing so.