Three Alternative Energy ETFs To Watch As Japan Drama Plays Out

by on March 29, 2011 | ETFs Mentioned:

The massive earthquake and tsunami that hit Japan earlier this month have dominated the headlines in recent weeks, as the fallout from the natural disaster continues and efforts to rebuild the country figure to take years to complete. The humanitarian crisis in Japan has been one of the most devastating in recent history; several thousand are dead, hundreds of thousands are homeless and no end is in sight for many of the hardest-hit in the island nation. Coupled with this element of the disaster are intensifying concerns about an environmental catastrophe, as a number of setbacks in managing the damaged nuclear plant have resulted in traces of radiation in Tokyo tap water and worries about the safety of a wide variety of Japanese products.

Joining the humanitarian and environmental crises is an economic catastrophe; the Japanese economy was struggling to gain traction prior to the quake, and though the area impacted most directly accounts for only a minor portion of Japanese GDP, the repercussions are being felt throughout the country.

The economic impact of the quake has not been limited just to Japan, as the ripples have been felt already throughout global markets. Currency markets responded almost immediately. Rare earth  metals companies took a hit on concerns of tepid Japanese demand. Countries that could assist in Japan’s reconstruction efforts received a boost, as did those that could benefit from slowdowns in Japanese factories [see Why Yen ETFs Are Up].

Perhaps no corner of the global market has been impacted as significantly as the nuclear power industry. In the wake of this recent tragedy, an entire industry is under intense scrutiny as governments around the globe are now questioning the safety of splitting atoms for power. Many are reconsidering their commitment to nuclear power no matter how insulated from earthquakes and natural disasters they may be. Germany, for instance, serves as an illustration of how this recent disaster could change the course of energy politics for decades to come. The central European country has announced that it will take seven of its 17 reactors offline for three months in order to undergo rigorous safety checks which many see as a signal to a future that is more heavily dependent on solar, wind, and other renewables for energy demands. “We cannot simply pursue business as usual” after the disaster in Japan, Chancellor Angela Merkel of Germany said in Brussels, although the country does receive about one-fourth of its power from the potent fuel source [Nuclear ETF Meltdown: Four Funds Rocked By The Quake].

The setbacks in limiting radiation have smeared an otherwise impressive safety record for the nuclear power industry, causing a huge sell-off in nuclear power companies. While ETFs like URA and NUCL have been battered in the wake of the nuclear crisis, other alternative energy options have come into focus as potential beneficiaries of a prolonged aversion to nuclear power. This shift has led to a surge in stock prices for many of the world’s top alternative energy companies as demand for clean, safe power surges in light of both this disaster and last year’s oil spill in the Gulf of Mexico. Below, we highlight three of the biggest winners in recent weeks that investors should keep their eye on as the Japan drama plays out and countries increasingly look to renewable power sources:

iShares S&P Global Clean Energy Index Fund (ICLN)

This fund looks to be a way for investors to play the broad alternative energy segment, investing in a variety of technologies that look to gain in importance if the world shifts to more non-fossil and non-nuclear fuel sources. The fund invests about 40% of its assets in technology companies with another 40% going towards utilities, suggesting that it may be a safer and less volatile pick than many other funds in the sector. Currently, the fund invests in 31 securities in total with large allocations going to the U.S., China, Spain, and Brazil. The iShares fund has gained over 13.5% since the start of the year including a 10% surge over the past two weeks alone, suggesting that many investors are considering this fund as a way to develop more exposure to the industry [see holdings of ICLN here].

PowerShares Global Wind Energy Portfolio (PWND)

Wind power looks to be especially important in Europe’s shift to alternative energy sources, as solar remains a prohibitively expensive option in the cash-strapped region that will now struggle to provide subsidies needed to operate in the short term. Thanks in large part to this, PWND has been one of the best performers in the sector over the past few weeks, gaining 10% over the past month alone and helping to rebound after a wind power slump in 2010 battered this industry. Spanish firms make up nearly 30% of the fund’s total assets, with the top two holdings going to Spanish wind power giants Vestas Wind Systems and Iberdrola Energias Renovables [Gust Of Activity Puts Wind Power ETFs In Focus].

Market Vectors Solar Energy ETF (KWT)

Although KWT isn’t the most popular ETF targeting the solar power market– having amassed assets of just $41 million so far– it has outperformed its competitors in the space thanks to the nature of its underlying holdings. KWT holds about 30 securities in total, with a heavy focus going towards mid and small cap companies. Top individual holdings go towards solar giant First Solar, Inc. (FSLR), MEMC Electronic Materials (WFR), and Trina Solar Limited ADR (TSL), all of which make up more than 9% of KWT’s total assets. The fund is up close to 17% so far this year and has surged by 11% in the past two weeks alone, suggesting that many investors are beginning to take another look at this fuel source to power the world in the 21st century [see Solar Energy ETFs Shining Bright In 2011].

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Disclosure: No positions at time of writing.