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TheStreet Open House

ETFs for Obama's Climate Change Agenda

Stocks in this article: GEXTANFAN

NEW YORK ( TheStreet) -- President Obama has said he wants to finish financial reform over the coming weeks and then tackle energy and climate policy reform. Investors who believe Obama will pursue his energy policies with the same persistence he used to push through his health care reform policies should think about alternative energy ETFs now.

The hype leading up to the implementation of this legislation could lead to a run-up in Global Alternative Energy ETF (GEX).

The House of Representatives passed a bill last year requiring the United States to reduce its carbon emissions by 17% from 2005 levels by 2020. The Senate hasn't yet passed similar legislation, but Obama is confident he can drum up bipartisan support for his climate policies.

The clean energy source that will be most favored in climate legislation is still anyone's guess, so investors should prioritize gaining exposure to a wide variety of technologies. The fund that does this best is GEX, which has exposure to alternative energy companies, clean energy technology, and firms working on energy efficiency.

Government support for clean energy could benefit companies around the world, but investors looking for a bullish ETF play on Obama's energy policy should target funds that allocate heavily to American companies. The president is confident that a thriving clean energy sector in America will ease unemployment and this means his energy policies likely will be most favorable for companies in the United States.

Some of the largest holdings in GEX are U.S. companies such as Cree (CREE), First Solar (FSLR) and Itron (ITRI), which account for 8.2%, 7.1%, and 4.2% of net assets, respectively. Overall, GEX has 47.2% exposure to U.S. firms.

If investors want to try and predict which sub-sector of clean energy will benefit the most from future legislation, they can choose a single sector clean energy ETF. For the solar industry, the most popular fund is Claymore/MAC Global Solar Energy Index ETF (TAN). For wind, the most liquid option is First Trust Global Wind Energy (FAN), although it still trades less than 50,000 shares each day on average.

For a play on the infrastructure that would transmit clean energy from its source to consumers, there is First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID). GRID only trades about 15,000 shares on an average trading day.

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