Currently there are two ETFs that dominate the clean alternative energy sector, PowerShares WilderHill Clean Energy Portfolio (PBW) and Van Eck’s Market Vectors Global Alternative Energy ETF (GEX). These two funds appear to be quite similar, and in many aspects they are. However, a closer look reveals many of their differences in structure, size, and value.The first of these ETFs to hit the market was PowerShares’ PBW, which tracks the WilderHill Clean Energy Index. This index is comprised of 54 securities covering small (58%), mid (26%), and large cap (16%) companies. Roughly 2 years after the launch of PBW, Van Eck’s GEX hit the market, which tracks the Ardour Global Index. This index is comprised of 30 securities covering small (11%), mid (40%), and large cap (49%) companies. When looking at the top five holdings of the two funds as a percentage of the total fund, PBW’s top five make up 15%, whereas GEX’s top five make up a much larger 45% of the fund. Take a closer look at the individual holdings, and you will see just how different these two funds are. The older PBW has some very small companies, such as ReneSola (SOL) and EMCORE (EMKR) as its top solar holdings, compared to First Solar (FSLR), Q-Cells, and Suntech Power (STP) in GEX. Below is a comparison of the top 10 holdings of each fund.
On a value comparison, PBW’s average trailing P/E ratio is around 38, while GEX is sporting a 47 trailing P/E. Both of these ETFs are good investments for direct exposure to the wind and solar energy sector, however Van Eck’s GEX seems to be the more appropriately weighted of the two, despite its lack of diversification. If the underlying index that PBW tracks were to reshuffle to a more relevant weighting, it would deserve a second look.
