NEW YORK (TheStreet) -- Clean energy exchange-traded funds have grown up parallel to the larger explosion in the ETF universe, and now with at least three years of history, it's possible to take a look at whether these investments make good long-term bets.
The general conclusion that can be drawn is that the best clean energy ETFs for the long haul are not necessarily the "cleanest."
Top-performing ETFs that fit the Morningstar clean energy category include water resources and energy services funds (see chart above), while the long-term laggards are the purer-play clean energy investments, primarily solar funds.It's no surprise that solar stocks can dominate clean energy indexes, and the more volatile indexes, given the number of public offerings in the sector relative to the rest of the clean energy universe. It's also no surprise that the investment wisdom with clean energy ETFs mirrors the case to be made for clean energy stocks on an individual basis: Pick your spots with momentum plays like solar coming off a bottom and you can profit, but holding any fund weighted to the solar sector for too long hasn't worked yet. The worst-performing clean energy ETFs over the past three years, through the end of February, are the Market Vectors Solar Energy ETF (KWT) and the Guggenheim Solar (TAN) ETF. Meanwhile, the best-performing clean energy ETF over the past three years is the PowerShares WilderHill Progressive Energy (PUW) ETF. Scott Burns, Morningstar director of closed-end and alternative fund research, said the best clean energy ETFs end up investing in utility, industrial, alternative transportation and natural resource companies -- even unconventional oil and gas drillers -- simply because of the dearth of pure-play companies outside of the solar sector. Investing in these types of companies also means investing in bigger cap companies, which reduces volatility. The top three holdings in the Wilderhill Progressive Energy ETF are India's Tata Motors, Clean Energy Fuels (CLNE), a builder of natural gas vehicle refueling infrastructure, and Methanex, which produces methanol, not just found in biodiesel but products from windshield washer fluid to recyclable plastic bottles, plywood floors and paint. Uranium miner Cameco (CCJ) and Brazilian utility Companhia Energetica de Minas Gerais, are also among the top 20 holdings in this top-performing clean energy fund. Having nuclear power play Cameco in a clean energy ETF isn't going to be music to the ears of most solar and wind energy backers.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV