New Wind ETFs

Posted by Bull Bear Trader | 7/01/2008 07:35:00 AM | , , , , , , , , | 0 comments »

Are you interested in wind energy, but don't have billions to invest like T. Boone Pickens? Are you afraid that you are going to pick the next, and not Don't fear. is reporting that the PowerShares Nasdaq OMX Clean Edge Global Wind Energy Index (ticker: PWND - prospectus) is expected to begin trading next week. It is actually not the first wind ETF. A few weeks ago, the First Trust ISE Global Wind Energy Index Fund (ticker: FAN - prospectus) hit the market. The PWND ETF will begin with 31 companies in its portfolio. The FAN ETF currently has 67 companies. Both have a high level of global diversification, which makes sense, given that I am not sure how they could even find 31 companies in the U.S., let along 67, with a significant exposure to wind energy. As a result of reaching out to global players, PWND is able to list that 90% of its companies are pure-plays. FAN has about 66% pure-plays. What is a pure-play? As defined, most of the business in the company must comes directly from wind energy - or specifically, the company must either produce 1,000 megawatts of energy, or generate $1 billion a year from wind-related power. Non-pure-plays include companies such as General Electric and Siemens, each which have significant interest in wind energy, but for which wind is still a relatively small profit center when compared to other business operations.

In addition to capitalization requirements and weighting rules, the funds also differ in the way they pick their companies. PWND uses a quantitative-based system, while FAN uses more fundamental analysis. Since the methodologies used by each are different, both are expected to deliver similar, albeit different returns. Given that wind energy has been growing at almost 30% per year globally, and crude oil and natural gas are continuing to trade at high levels, wind energy should continue to generate interest and electricity as countries going green begin using less coal to fuel their power plants. Nonetheless, if tax breaks expire, and crude oil and natural gas come back to "normal" levels, interest in wind energy could fall back a little, adding some potential volatility to returns.

Given the global nature of the funds, and that the industry is just beginning to gain exposure, many of the pure-play wind companies are not well-known. For the FAN ETF, major holdings greater than 5% include Vestas Wind Systems, Repower Systems, Gamesa Corp Tecnologica SA, and Hansen Transmission International NV. Given that the PWND ETF follows the Nasdaq OMX Clean Edge Global Wind Energy Index, major components can be found here. The top five holdings greater than 1% include Zoltek Companies (ZOLT), American Superconductor Corporation (AMSC), KHD Humboldt Wedag International, General Electric (GE), and FPL Group, Inc. (FPL). Other U.S. listed companies in the FAN include AES Corp. (AES) and Xcel Energy (XEL).