The best ways to buy into green energy
The EU, China, the US and Japan are all raising investment in renewable energy. That makes buying into the sector tempting. Here, James McKeigue picks two funds that will give you exposure to a range of 'green' stocks.
The 2009 Copenhagen climate conference failed to establish a successor deal to the Kyoto Protocol climate change treaty. However, the European Union, China, the US and Japan are still raising investment in renewable energy. And with 'green' issues forming a major part of Britain's new coalition government manifesto, investors might be tempted to look at buying into the sector.
The problem with investing directly in renewable energy stocks is that while their technologies often work, they're not always commercially viable. Renewable energy often depends on subsidies or feed-in tariffs that put individual firms at the mercy of the regulators in their key markets. Firms are also exposed to the risk of emerging technologies rendering their product obsolete. So this is a sector where funds can be a good way to get exposure to a range of stocks without having to do all the due diligence yourself.
Guinness Alternative Energy Fund (minimum investment £5,000) has a geographical spread of investments and is more balanced than many of its peers. Around a fifth of the portfolio is in Asia. Another plus is that the fund focuses on non-hydro-based renewable technologies, solar (49%) and wind (25%), which have the most growth potential.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The fund isn't cheap, with a Total Expense Ratio (TER) of 2%. But after an understandably dismal 2008, the fund earned 38.7% in 2009.
If you can't stomach handing over 2% of your investment a year, then the Blackrock New Energy Investment Trust (LSE: BRNE) is cheaper, with a TER of 1.4%. Over the last five years this fund has managed annualised returns of just under 10%. It also looks good value at the moment at 42.25p it is trading at 14.4% discount to net asset value.
The fund focuses on wind energy as its top non-hydro renewable choice for utilities, with some emphasis on niche solar. Also, unlike the Guinness fund, it includes biofuels in the portfolio.
The downside is that it is largely focused on the US and Europe, with only 6.4% of the fund invested in Chinese companies. Sure, it has indirect exposure to Asia through the sales of its main holdings, such as American Super Conductor.
Yet in the long-term indigenous Chinese firms are expected to gain more domestic market share. However, of course, the flipside is that Chinese stocks arguably operate in a more risky political environment. Given the hefty discount and the cheaper TER, Blackrock would be our preferred bet in the sector.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
James graduated from Keele University with a BA (Hons) in English literature and history, and has a certificate in journalism from the NCTJ. James has worked as a freelance journalist in various Latin American countries.He also had a spell at ITV, as welll as wring for Television Business International and covering the European equity markets for the Forbes.com London bureau. James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.
-
Taking control of your business expenses with Wallester
Why Wallester Business is your cost-effective solution to help you take financial control of your business
By MoneyWeek Published
-
Four AI ETFs to buy
Is now a good time to buy AI ETFs? We examine four AI ETFs that investors might want to add to their portfolio
By Dan McEvoy Published