NEW YORK (
) -- 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
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
, 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
. For wind, the most liquid option is
First Trust Global Wind Energy
, 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 only trades about 15,000 shares on an average trading day.
Considering that Obama is seen as losing support from some of the groups that helped elect him, such as Democratic environmentalists, he is likely to make his efforts for energy and climate reform very vocal as the mid-term elections draw near. ETF investors should consider gaining exposure to the industry now, which can be done best through a fund such as GEX.
Finally, investors should be aware that just as the health care reform bill was eventually watered down, an energy and climate bill will end up being weaker than expected. This is why it is important for investors to get involved with clean energy ETFs now, in order to take advantage of the potential hype before a bill is passed.
At the time of publication, Dion owned none of the securities mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.