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Alternative Energy Mutual Funds and ETFs: Fidelity Investments Enters the Fray with FSLEX

Sam Subramanian PhD, MBA

Fidelity Investments is now offering investors a way to invest in the alternative energy group by extending the investment objective of a Fidelity Select fund.

Sensing stronger demand from investors to invest in alternative energy ideas following BP's (BP) oil spill in the Gulf of Mexico and Massey Energy's (MEE) coal mine disaster in West Virginia, Fidelity has changed the investment objective of Fidelity Select Environmental Portfolio to include alternative energy investments. As of July 1, 2010, the fund is called Fidelity Select Environment and Alternative Energy, FSLEX.

What does the change mean for holdings of Fidelity Select Environment and Alternative Energy?

Under the new investment policy, Fidelity Select Environment and Alternative Energy will invest in Energy Efficiency, Renewable Energy, and Alternative Energy companies in addition to investing in Pollution Control, Water Infrastructure and Technologies, Waste Management, and Environmental Support Services companies.

Until now, the fund has often held concentrated positions in environmental facility companies like Republic Services (RSG) & Waste Management (WM), specialty chemical companies like Ecolab (ECL) & Nalco (NLC), and pollution control equipment companies like Pall Corp (PLL).

While the above may not entirely change, overtime one can expect the fund to add shares of companies like solar energy solutions providers First Solar (FSLR) & Trina Solar (TSL), wind power systems makers Vestas Wind Systems (VWDRY.PK) & Broadwind Energy (BWEN), and energy efficient lighting maker Cree (CREE).

Table of Popular Environment and Alternative Energy Investments

Alternative Energy Exchange Traded Fund

  • Market Vectors Global Alternative Energy ETF, GEX

Alternative Energy Mutual Funds

  • Calvert Global Alternative Energy Fund, CAEIX
  • FirstHand Alternative Energy Fund. ALTEX
  • Guinness Atkinson Alternative Energy Fund, GAAEX
  • New Alternatives Fund, NALFX

Clean Energy Exchange Traded Funds

  • First Trust Nasdaq Clean Edge Green Energy ETF, QCLN
  • iShares S&P Global Clean Energy Index ETF, ICLN
  • PowerShares Global Clean Energy ETF, PBD
  • PowerShares WilderHill Clean Energy ETF, PBW

Clean Energy Mutual Fund

  • Winslow Green Growth Fund, WGGFX

Energy Efficiency Exchange Traded Funds

  • First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index ETF, GRID
  • PowerShares Cleantech ETF, PZD
  • PowerShares WilderHill Progressive Energy, PUW

Environmental Services Exchange Traded Fund

  • Market Vectors Environmental Services ETF, EVX

Solar Energy

  • Claymore/MAC Global Solar Energy ETF, TAN
  • Market Vectors Solar Energy ETF, KWT

Wind Energy

  • First Trust ISE Global Wind Energy Index ETF, FAN
  • PowerShares Global Wind Energy ETF, PWND

What does addition of alternative energy stocks mean for risk?

The addition of alternative energy stocks to Fidelity Select Environment and Alternative Energy will likely increase the volatility of the fund. Most alternative energy companies are in early stages of growth. Their fortunes can be affected by fossil fuel prices as well as willingness of governments to support development of new technologies through incentives. With many companies vying to develop new methods of generating electricity, technological obsolescence is a risk as well. The above factors coupled with smaller market capitalizations of most alternative energy stocks tend to make them more volatile.

Why invest in Fidelity Select Environment and Alternative Energy?

Alternative energy technologies have the potential to be one of the key growth areas in the future, as they help develop more compelling energy solutions. They include generation of electric power from renewable, clean sources, and improvement in energy efficiency from more efficient lighting. Fidelity Select Environment and Alternative Energy provides a convenient way for investors to participate in the growth of alternative energy technologies by investing capital in a diverse set of companies. See: Profiting from Cleantech Investments - Mutual Funds and ETFs

How to invest in Fidelity Select Environment and Alternative Energy?

There are two ways to invest in Fidelity Select Environment and Alternative Energy, broadly speaking. To participate in the long-term growth of environmental and alternative energy companies, investors with broadly diversified portfolios can consider including Fidelity Select Environment and Alternative Energy as a satellite or complementary holding in the mix of investments.

Considering risks and the likelihood of a volatile ride, investors can also take a more opportunistic approach to investing in FSLEX. Investments in Fidelity Select Environment and Alternative Energy can be made through a sector rotation strategy that selects the fund when environmental services and alternative energy stocks are in favor.

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