Alternative Energy ETF

By: EconomyWatch   Date: 30 July 2009

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 An alternative energy ETF invests in companies that are engaged in alternative energy research and production. An alternative energy ETF holds a number of stocks of companies that produce energy from environment friendly resources.

 

Alternative energy ETFs are created and marketed just like any other ETF. The only difference is the underlying securities.

 

Green Investment: Alternative Energy ETF

 

As alternative energy ETF is a green investment. With more and more companies focusing on alternative energy research, the portfolio of these ETFs is becoming increasingly convincing. Alternative energy research is in the limelight due to two reasons:

  • Depleting natural resources

  • High demand of environmental friendly products

 

Many companies have already launched their eco-friendly products in the market and the rest are catching up due to the burgeoning demand for such products. This has opened up new avenues for investments and alternative energy ETFs are facilitating their funding and profits for investors as well.

 

Advantages of Alternative Energy ETFs
 

Besides being a green investment, alternative energy ETFs have the following advantages:

  • Alternative energy ETFs are narrower than other ETFs. As the demand for alternative energy is high, a narrow investment reaps more profits than a diversified one.

  • Alternative energy ETFs are the right way to diversify your portfolio. The high volatility and demand coupled with the prospects make these ETFs the ideal hedging funds.

 

These ETFs are ideal for short term traders as they are very volatile and less risky.

 

Disadvantages of Alternative Energy ETFs
 

The disadvantages of alternative energy ETFs are:

  • Alternative energy ETFs have a higher expense ratio. Their higher expense ratio than normal indices makes them an expensive fund to invest in.

  • As they tend to be narrowly focused, the lack of diversification makes them prone to big losses.

  • The high volatility of the ETFs, driven by rumors and sentiments, can de-motivate traders from investing long term.

 

Investing in alternative energy ETFs is a lucrative as well as a responsible investment. However, one should know that many companies invest only a small portion of their resources in alternative energy. Therefore, a lot of caution should be exercised while investing in these ETFs. The underlying securities should always be checked.

 

 


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