John Fletcher considers the long-term gains investors can make from committing to Barack Obama...
John Fletcher considers the long-term gains investors can make from committing
to Barack Obama's alternative energy plans
"I've called for investments in solar, wind, geothermal. Contrary to what Sen. McCain keeps on saying, I favor nuclear power as one component of our overall energy mix." Sen. Obama, October 7 2008
The 44th president has not wasted time since coming to office as he pushes forward to kick-start a "new American energy economy". Just some of Obama's bullet points are as follows:
•· Help create 5 million jobs by strategically investing $150bn into clean energy over the next ten years;
•· Within 10 years save more oil than currently imported from the Middle East and Venezuela;
•· Have +1 million hybrid cars on the road that will do 150 miles per gallon by 2015
•· Ensure 10% of US electricity comes from Renewable Sources by 2012, and 25% by 2025
•· Develop and deploy clean coal technology
The president has already won plaudits from natural gas and wind energy proponents. According to a recent article from Reuters, the United States overtook Germany as the biggest producer of wind power last year. Obviously, this was not down to President Obama directly as he was not in power then, but with his reforms blazing a trail to a greener America, things in this sector have never looked so bright. Wind energy power capacity increased by 50% last year to 25 gigawatts, which is enough to power more than 5 million homes. "Governments must send a strong and unequivocal signal that the age of fossil fuels is over", said Steve Sawyer, secretary general of the Global Wind Energy Council.
With America in recession and Obama committed to getting the country back on its feet, the initiatives on promoting green energy should help in a big way toward this goal. Indeed, Obama's plans would look to "put up to 460,000 US residents back to work" when he announced his American Recovery and Reinvestment Plan on the 26th January. Additionally, of particular interest was the Clean Energy Finance Initiative that aims to help give massive financial support ($100bn) to private sector investment into alternative energy resources and technology.
So with a new, determined US president in the driving seat, how could one benefit from this potential massive injection of funds into this sector? There are various ETFs that can give the investor an excellent broad exposure to alternative energy. With America now expected this year to overtake Germany as the world's largest producer of solar power (we didn't know Germany was so sunny!) things seem to be gathering pace.
ETFS DAXGlobal Alternative Energy Fund (ALTP)
The first ETF to look at is a relatively new fund from ETF Securities. This is a leap from their normal selection of commodity funds as the underlying securities are companies from around the globe. The DAXGlobal Alternative Energy Fund (symbol: ALTP) aims to track the performance of around 15 alternative energy companies which have over 50% of their revenues coming from one or more of the following: natural gas, solar, wind, ethanol and geothermal/hybrids/batteries.
The fund is Ucits III compatible and can be invested into Isas and Sipps. The TER is above average at 0.65%
This fund gives one exposure to a slightly wider, eclectic choice of company. As the name suggests, the companies invested in are involved in clean energy production, but also in the manufacture of equipment and technology for the clean energy industry. This choice is therefore not such a 'pure play' on the sector as ALTP but should still give adequate exposure.
ETFS WNA Global Nuclear Energy Fund (NUKP)
The next fund, aptly given the symbol NUKE ($ price, LSE-listed or NUKP in £), gives a broad exposure to the nuclear industry. It invests in roughly 65 different companies involved in reactors, utilities, construction, technology, equipment, service providers and fuels. Again, the TER is 0.65%, it is Ucits III compliant and can be traded in both Isas and Sipps. It is designed to track the WNA Global Nuclear Energy Index.
Lyxor ETF New Energy (LNEW)
The last fund to offer is from the house of Society Generale. Lyxor ETF New Energy was listed just under a year ago and again gives global exposure to the alternative energy sector. The World Alternative Energy Index, its tracker index, is calculated by Dow Jones and is a global cap-weighted index of 20 stocks active in the alternative energy sector. The country exposure is shown below.
Its TER is slightly lower than the others mentioned in this article at 0.60%, it is Ucits III compliant, and can be invested into an Isa or Sipp.
As you can see, there are quite a number of ETFs listed on the LSE and all of them achieve pretty much the same in terms of exposure to this sector, so stock selection ultimately distills down to personal preference. For example, if you prefer to invest in an ETF run by a company with a long pedigree then the iShares product might be best; alternatively, you might commit funds across a number of these funds in order to spread risk away from just one ETF provider.
In conclusion, if you are considering positioning yourself for an increase in value in the alternative energy sector as Barack Obama's initiatives begin to defibrillate the economy then these ETFs could turn out to be an excellent long-term investment.
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