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Alternative Energy Powers These Funds

Earth Day may be one day a year, but for some funds it's been Earth Day all year.

Anyone not convinced that environmental green can equate to monetary green should take a look at the top of the open-end equity mutual fund performance rankings for the first quarter of this year.

The top-performing fund for the first three months of 2007 was the (GAAEX) Guinness Atkinson Alternative Energy Fund (GAAEX) with a blistering gain of 14.46% for the period. The sixth spot was captured by the (NALFX) New Alternatives Fund (NALFX), another fund largely committed to alternative energy which rewarded its holders with an early Earth Day present of an 11.89% first-quarter return.

Alternative energy sources include those using solar, wind, hydroelectric, tidal wave, geothermal biomass or biofuels to generate power. In addition, other technologies have become an important weapon in achieving energy efficiency.

In order to see how other U.S. open-end funds are participating in the alternative energy sector, we searched Ratings database to examine portfolio holdings in selected alternative energy stocks. The stocks we chose are the eight with the highest domestic weightings in the WilderHill New Energy Global Innovation Index. The components of the index are primarily international, with only a few U.S. constituents.

The selected alternative energy stocks, along with summaries of holdings by U.S. open-end funds, appears in the table below. Fund holdings of the eight companies rank from a low of 6.2% of the shares in First Solar (FSLR) to a high of 22.6% in Energy Conversion Devices' (ENER) outstanding shares.

Best-Performing Funds Holding Alternative Energy Stocks (Q1 2007)
Name, Ticker, Ratings Grade* Objective No. Held % of Assets Value ($mil) 3-Mo. Total Return (%)
Guiness Atkinson Alt Energy Fund (GAAEX) U Energy/Natural Res 2 3.62 3.6 14.56
New Alternatives Fund (NALFX) B+ Growth - Domestic 2 6.15 7.2 11.89
Firsthand-Technology Value Fund (TVFQX) E Tech/Communications 1 6.68 22.1 9.23
Chesapeake Growth Fund A (CHEAX) D+ Mid Cap 1 5.26 0.6 6.50
Eaton Vance Growth Fund A (EVGFX) C- Small Cap 1 4.95 6.7 5.56
Chesapeake Core Growth Fund (CHCGX) D Growth - Domestic 1 4.19 34.4 5.20
Eaton Vance Tax-Mgd MultiCap Opp A (EACPX) D+ Growth - Domestic 1 4.85 7.4 5.02
DWS Mid Cap Growth A (SMCAX) D+ Mid Cap 1 3.73 55.3 4.86
Thornburg Core Growth Fd A (THCGX) B+ Growth - Domestic 2 6.70 104.9 4.64
Calvert Capital Accumulation A (CCAFX) E+ Mid Cap 1 3.67 4.9 4.28
Munder Future Technology A (MTFAX) E- Tech/Communications 2 5.48 6.2 4.25
Tocqueville Small Cap Val Fund (TSCVX) E- Small Cap 1 3.82 1.5 3.92
Federated Kaufmann A (KAUAX) C Mid Cap 2 3.81 367.7 3.71
Henderson U.S. Focus Fund A (HFUAX) U Growth - Domestic 1 4.07 0.6 3.69
Firsthand-Global Technology (GTFQX) E- Tech/Communications 1 3.55 0.5 3.34
Jordan Opportunity Fund (JORDX) C- Growth - Domestic 3 5.43 1.2 3.07
Brandywine Blue Fund Inc. (BLUEX) C Growth - Domestic 1 3.63 76.9 2.37
BlackRock Global Technology Inv A (MDGTX) E- Tech/Communications 1 4.05 10.2 1.15
Van Wagoner Emerging Growth Fund (VWEGX) E- Emerging Market Equity 3 4.45 1.7 0.43
J Hancock Tech Leaders A (LUXRX) E Growth - Domestic 1 4.28 0.1 -0.30
* U is unrated.
Source: Ratings - Data as of 3/31/2007.

While larger companies may have divisional activities in alternative energy, the funds in the table, in the opinion of the WilderHill New Energy Global Innovation Index, are most heavily dedicated to that singular effort.

The open-end list of funds are ranked by return performance for the first quarter of 2007. A total of 598 funds have positions in at least one of the eight firms, with the (THCGX) Thornburg Core Growth Fund (THCGX) having the biggest commitment, a total of 6.7% of its portfolio in two of the eight stocks.

Aggregate holdings of U.S. funds in the eight stocks amounts to $446 billion, which amounts to 15.2% of the group's aggregate market value of $29.27 billion.

Because technology is an inherent component in the development of alternative energy -- Energy Conversion Devices (ENER)being a prime example -- four technology funds are among the top-20 top percentage holders of the eight stocks.

Even though the Guinness fund holds only two of the domestic alternative energy stocks amounting to 3.62% of its portfolio, it is the purest play for that sector of all current open-end funds. Its total portfolio holdings are spread among 14 countries, with only 21.12% of its portfolio invested in U.S. stocks.

Like the Guinness fund, the New Alternatives Fund is largely international in focus; this helps explain why it holds only two of the domestic stocks in the table.

In addition, two alternative energy exchange-traded funds are the PowerShares WilderHill Clean Energy Portfolio (PBW) and the PowerShares WilderHill Progressive Energy Portfolio. (PUW) The former focuses on clean energy, while the latter invests in a basket of stocks that focus in "transitional energy bridge technologies, with an emphasis on improving the use of fossil fuels."

The PowerShares WilderHill Clean Energy Portfolio, which has been around since March of 2005, ranked 16th out of 377 ETFs during the first quarter of 2007, with a total return of 9.06% for the period. The portfolio, which debuted in October of 2006, returned 4.34% during the first quarter. Its portfolio includes Tenneco (TEN), Toyota (TM) and Honda (HMC).

*Alternative Energy Pure Play Stocks
Name Ticker No. of Funds Value ($Mil) Market Value ($Mil) % By Funds
Baldor Electric Company BEZ 93 233.2 1,788.1 13.0
Energy Conversion Devices Inc ENER 122 324.1 1,436.7 22.6
First Solar Incorporated FSLR 56 273.2 4,407.6 6.2
Itron Incorporated ITRI 164 390.9 2,120.8 18.4
Memc Electronic Materials Inc WFR 294 2,422.4 13,955.3 17.4
Ormat Technologies Inc ORA 55 170.3 1,568.3 10.9
Puget Energy Incorporated New PSD 95 581.8 3,095.1 18.8
Zoltek Companies Incorporated ZOLT 46 61.0 902.7 6.8
TOTALS 4,456.8 29,274.6 15.2
*Open-end fund holdings in major U.S. stocks of the Wilderhill New Energy Global Innovation Index
Source: Ratings & Bloomberg.

Richard Widows is a financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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