Alternative Energy ETFs
Rising crude oil prices and global warming have been an ever looming threat to the economies of countries of the world in the past two years at least. So, stock investors’ confidence in an alternative energy ETF has received a boost in the past two years.
What Are Alternative Energy ETFs ?
ETF is a term for an exchange traded fund. An ETF is a basket of securities in a specific sector. Like a mutual fund it tracks an index that defines the overall performance of a specific basket of listed individual company stocks in that sector. However, an ETF is traded like stock.
An alternative energy ETF is a basket of stocks of companies that are involved in alternative energy production. The companies are involved in the production of energy using sources of mostly clean and renewable energy such as the Sun, the Earth, wind power, hydro power, nuclear power, biomass, and biofuels.
Why Invest in Alternative Energy ETFs?
So, why should an investor trade in an alternative energy ETF? There are many reasons for this.
Although, stock market trading is also somewhat dependent on the fundamentals of stock companies, the latest news and changes in economic conditions affect it much more.
Therefore, current stock market sentiment is based on the above two aspects and affects stock prices in a big way. Overall, stock price fluctuations are more affected by the speculative nature of the current market sentiment rather than on company fundamentals.
Crude oil, coal, and natural gas are non-renewable and non-sustainable sources of energy. The world is still dependent on them to meet 80% of its energy needs. On the other hand, alternative energy sources together meet barely 20% of the global energy needs.
Therefore, the current international per barrel sale price of crude oil affects the index value of an alternative energy ETF portfolio more than the fundamentals of the companies themselves.
When crude oil prices spiral upwards, a crude oil ETF’s index value will drop, but that of an alternative energy ETF will soar. It is in this scenario that offloading of an investor’s earlier investments in an alternate energy ETF will fetch handsome returns.
Global Warming and Alternative Energy ETFs
Another reason for investments in an alternative energy ETF is because of global warming concerns. Conventional energy sources such as crude oil, coal, and natural gas contribute to global warming through the emission of green house gases.
This concern can become overwhelming in the near future and cause a paradigm shift towards exclusively dependence on alternative energy sources to provide clean and sustainable energy to meet global energy needs.
This change will foster the development of alternative energy sources and cause many new companies to enter the alternative energy production business. Two important fallouts of these changes would be related technological advances and funds for the requisite massive infrastructure development. Naturally, investing in an alternative energy ETF will definitely fetch good returns on investment in such a scenario.
