PowerShares WilderHill Clean Energy ETF (PBW)

Do you have the risk tolerance for a renewable energy ETF?

One of the trends emerging from the wreckage of oil prices and instability in the world's oil-producing countries has been a focus on renewable energy investing. While this field is still relatively new, many people are turning to investment that may help wean us from oil, help the environment, and make money. Some of the more promising prospects could be renewable energy ETFs.

An exchange traded fund, or ETF, is a fund that trades on the stock exchange like a regular stock. So it has the power of several companies in one, but you can trade an ETF much like trading a stock (although some ETFs charge annual fees). The first renewable energy ETF to come along (back in March 2005) was the PowerShares WilderHill Clean Energy Portfolio (PBW – $20.81). This ETF tracks the WilderHill Clean Energy Index, and focuses on companies that produce green and/or renewable energy, as well as companies that develop the technologies that make green energy possible.

Right now, ETFs in general are moving through a sort-of downtrend. They were making great returns earlier, but have since dropped off. And this includes renewable energy ETFs like PBW. Additionally, the WilderHill Clean Energy Portfolio is very volatile. You only have to see its chart to see its erratic movements. Overall, though, the ETF is moving up.

Like most ETFs, (PBW – $20.81) is a good deal. ETFs offer cost-efficient ways to invest in the stock market with the chance of great returns. With the WilderHill Clean Energy Portfolio, however, it is important to note that the annual 0.6% fee will cut into your earnings. But that's not too bad in the grand scheme of things. Just remember that commissions or fees for trading the ETF may apply as well.

The bottom line is that ETFs offer some great opportunities for investors. But beware! ETFs are generally volatile, renewable energy especially so. However, renewable energy ETF options also provide the ability to feel good about your investment. The oldest renewable energy ETF, WilderHill Clean Energy Portfolio, has a track record of moving up and could be a good addition to a portfolio that can handle a little more risk (you might limit PBW to 3-5% of your holdings, depending on your risk tolerance).

The potential for alternative energy is there. And a good renewable energy ETF may be a valuable addition to your investment portfolio.

Disclosure: I am considering adding PBW to my investment portfolio.

Site disclaimer.