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