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Gain
Exposure to the Lucrative Alternative Energy Sector with
this Fund |
Published:
April 7, 2008
Alternative energy has been among the hottest investment
themes of the past few years. There are several key drivers of
this trend.
Consider that as recently as 2002, crude oil was trading below
$20 per barrel and natural gas cost less than $2 per million
British Thermal Units (BTUs). Now, oil is trading at over $100,
while natural gas is trading at more than five times its lows.
Naturally, rising prices for key energy commodities spells
rising costs for consumers. For the first time in history,
drivers have been consistently paying more than $3 for a gallon
of gasoline. And electricity produced from natural gas is
becoming increasingly expensive. Alternative energies offer a
way to cut dependence on fossil fuels and reduce this extreme
variability in energy costs.
Another pillar of growth
is increasing government regulation. The U.S. already controls
the emission of pollutants from power plants. Pollutants are
regulated using a cap-and-trade system. This system allows power
plants polluting above their regulated maximum emissions to buy
credits from cleaner plants.
Thus, dirtier plants have the choice of buying potentially
expensive credits or taking steps to reduce emissions of key
pollutants. This system serves as an economic incentive --
cleaner plants are able to recoup some of their pollution
mitigation costs by selling their excess environmental credits.
And this system will become increasingly important as attention
turns to carbon dioxide and "greenhouse" gases. On April 2, 2007
the U.S. Supreme Court made a pivotal decision regarding
environmental regulation. The nation's highest court ruled that
the U.S. Environmental Protection Agency (EPA) acted improperly
by refusing to regulate greenhouse gas emissions under the Clean
Air Act. It's likely some sort of carbon regulation will
eventually become part of U.S. law.
The
Market Vectors Global Alternative Energy ETF (NYSE: GEX, $52.22) is an exchange-traded fund that offers broad exposure to
several key sub-sectors
of the alternative energy industry. The fund's top holdings include
solar plays such as First Solar (Nasdaq: FSLR), SolarWorld and
Suntech (NYSE: STP). First Solar is the leader in the so-called
thin-film solar market -- thin film solar cells use cadmium
telluride, a lower-cost raw material than the polysilicon used
by most solar firms. Polysilicon supplies are extremely tight
right now due to strong demand, and this has sent prices soaring
over the past two years. This gives FSLR a key cost
advantage over the competition.
GEX also includes significant exposure to the global wind
market with holdings such as Denmark's Vestas Wind Systems and
Spain's Gamesa. Vestas is the world's leading manufacturer of
wind turbines, with more than a one-third share of the global
wind market.
In addition to solar and wind, GEX includes smaller positions
covering ethanol and biofuels, energy efficiency and geothermal
power. By providing investors with diversified exposure to the
alternative energy business, GEX is a smart way to invest in this
booming market. My staff and I think GEX looks like a solid
"Buy" below $55.
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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