For small investors looking to gain a broad-based exposure to the green technology sector, Exchange Traded Funds (ETFs) are one of the best options available.

An ETF is designed to mimic the performance of a particular market or index, and their value is determined by whether the index rises or falls. However, unlike traditional tracker funds, ETFs are traded like individual stocks, and can be bought and sold very easily through your broker (or on-line broker) just like any other listed stock.

Advantages of ETFs:

·        Low cost compared to a managed fund.

·        They’re priced continuously throughout the day, therefore you can buy and sell at any time.

·        No minimum investment requirements.

·        They offer a low cost means to build a highly diversified portfolio without having to do the stock-picking yourself.

Disadvantages of ETFs:

·        They’re passive investments; an ETF has holdings in every company on an index. By contrast, a managed fund is just that – it’s actively managed to sort out the winners from the losers.

·        Because they mirror the index or market, their value will depend entirely on the market in which they’re invested: if it drops, your cash drops too.

You can buy ETFs that track just about anything, from the FTSE 100 to specific commodities. Within the cleantech world, you can choose between funds which track the whole sector or just specific sub-sectors such as wind or solar.

In choosing an ETF, you need to consider:

·        Performance of the fund.

·        The expense ratio; the lower the better, otherwise costs will eat into your investments.

·        The proportional mix of technologies/stocks in the fund: is there too much reliance on wind? Are they overweight in solar?

·        Ethical concerns: do you want to be invested in biofuels, nuclear power, or medical waste technologies? (all of which appear in some ‘clean energy’ ETFs).

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Global ETFs:

IShares S&P Global Clean Energy

Ticker: INRG.L

Benchmark index: S & P Global Clean Energy Index

Expense ratio: 0.65%

Top 10 holdings: Iberdrola Renovables; Covanta; First Solar; Vestas; Yingli Green Energy; Sunpower; Solarworld; EDF Energies Nouvelles; REC; Gamesa.

Notes: It’s worth noting here that solar power is a big component of this fund (46% as at 26/06), which goes some way towards explaining its poor performance (-53% from inception to 26/06). However, if you were of the belief that solar has reached bottom and that this sector is likely to recover soon, then this could be a good buying point.

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Powershares Global Clean Energy

Ticker: PBD

Benchmark index: WilderHill New Energy Global Innovation Index

Expense ratio: 0.75%

Top 10 holdings: Vestas; EDP Renovaveis; Acciona; Gamesa Iberdrola Renovables; Hansen Transmissions; China High Speed Transmission Equipment Group; EDF Energies Nouvelles; Energy Conversion Devices; First Solar.

Notes: this fund has dropped around 37% since its inception. Solar constitutes around 33% of the fund.

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Sector-specific ETFs:

WIND:

First Trust ISE Global Wind Energy Index Fund

Ticker: FAN  

Benchmark Index: ISE Global Wind Energy Index

Expense ratio: held at 0.60% until 18/06/2010.

Top 10 Holdings: EDP Renovaveis; Vestas; Iberdrola Renovables; Hansen Transmissions; Gamesa; Repower Systems; Infigen Energy; Nordex; Broadwind Energy; Japan Wind Development ; Fersa Energias Renovables.

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PowerShares Global Wind Energy Portfolio

Ticker: PWND

Benchmark index: NASDAQ OMX Clean Edge® Global Wind Energy Index

Expense ratio: 0.75%

SOLAR:

The Claymore/MAC Global Solar Energy Index ETF

Ticker: NYSE:TAN

Benchmark index: MAC Global Solar Energy Index

Top 10 holdings: First Solar; REC; Q-Cells; MEMC; Suntech Power Holdings; SolarWorld; LDK Solar; Energy Conversion Devices; SunPower; JA Solar.

Expense ratio: 0.65%

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Van Eck Solar Energy EFT

Ticker: NYSE:KWT

Benchmark Index: Ardour Global Solar Energy Index

Expense ratio: 0.65%

Top 10 Holdings: MEMC; Suntech; First Solar; Solar World; REC; Yingli Green Energy; SunPower; Energy Conversion Devices; Q Cells; SMA Solar Technology.