The demand for alternative energy continues to rise across the world due to a multitude of reasons. Many developing nations, such as China, suffer from a paucity of fossil fuel resources. A number of developed countries like Japan also face such a situation and have increasingly turned towards alternative energy to deal with the rising demand.
Solar Power
In an environmental plan unveiled in June, President Obama has placed fresh limits on existing coal-fired power plants. Regulators have been asked to set carbon pollution standards for plants which are already operating. Currently, coal-fired plants produce around 40% of the electricity in the U.S. and are the largest source of carbon emissions.
These developments have increased the demand for solar power which has become the most widely used option for renewable energy. In 2012, The Solar Energy Industries Association (SEIA) said the U.S. solar energy industry had grown 76% year over year to reach 3,313 megawatt. However, despite its inherent potential, the U.S. still lags far behind other countries in this area.
Newer Options
The relatively older and established options in this domain are solar, hydro, wind, biomass and waste-based power. Now, new and promising options have emerged. For example solar energy has traditionally been produced using photovoltaic panels. But concentrated solar power has now emerged as an increasingly viable option.
Similarly, geothermal power is now a particularly viable alternative. But the most promising among the new options is power derived from the sea. A number of ocean power technologies may soon become commercially viable options. Up to now, the high start-up costs related to research and development in this area has prevented its adoption. However, this situation may soon undergo a change.
Below we are presenting three mutual funds, each of which invests in alternative energy and have high returns, as well as a good Zacks Rank.
Mutual Fund Picks
Guinness Atkinson Alternative Energy (GAAEX—MF report)
Launched in March 2006, this fund has total assets of $22.7 million. It invests heavily in domestic and foreign companies from the alternative energy sector. The fund invests in companies regardless of their market capitalisation and may also invest in developing economies. It is a non-diversified fund and has a year-to-date return of 66.40%. The fund holds 34 assets and its top 10 holdings account for 44.53% of its investments.
The asset it is most invested in is SunPower Corporation (SPWR), which makes up 5.59% of its assets. The next two, Vestas Wind Systems A/S and Good Energy Group Plc, together make up 9.79% of its assets. The fund returned 68.18% over the last one year period and has a Zacks Rank #1(Strong Buy).
Waddell & Reed Energy A (WEGAX—MF report)
This fund has total assets of $235.9 million and was launched in March 2006. It invests the majority of its assets in the energy sector. These companies may be involved in activities such as exploration, discovery and production of conventional and alternative energy or both these sources. This fund has a year-to-date return of 24.43%.
The fund holds 58 assets and its top 10 holdings account for 37.84% of its investments. The asset it is most invested in is Continental Resources, Inc. (CLR), which makes up 4.51% of its assets. The next two, National-Oilwell Varco, Inc. (NOV) and Schlumberger Limited (SLB), together make up 8.50% of its assets. The fund returned 24.74% over the last one year period and has a Zacks Rank #1 (Strong Buy).
Firsthand Alternative Energy (ALTEX—MF report)
Launched in October 2007, this is the smallest of the funds with total assets of $6.7 million. The fund focusses on investing in companies which specialize in alternative energy production or the requisite technology. The fund invests in companies without regard to their market capitalization. This fund has a year-to-date return of 79.64%.
The fund holds 37 assets and is concentrated around its top 10 holdings, which account for 57.36% of its investments. The asset it is most invested in is SolarCity Corp (SCTY), which makes up 14.22% of its assets. The next two, Corning Incorporated (GLW) and Praxair Inc (PX), together make up 10.41% of its assets. The fund returned 69.97% over the last one year period and has a Zacks Rank #2 (Buy).
With environmental concerns coming in for special attention from policy makers, alternative energy is an area which promises significant growth in the future. This is why these funds would make excellent additions to your portfolio.
Get the full MF report on GAAEX (free)
Get the full MF report on WEGAX (free)
