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Sustainable Investment: "Green" light or caution ahead?

In his State of the Union address last month, President Obama threw down the gauntlet:  a challenge to produce 80% of our electricity from clean energy sources by 2035.  This ambitious initiative would require an almost unprecedented partnership between government and the private sector, and will certainly be controversial. A portion of the funding would come from reduced subsidies for oil and gas producers, and would have an adverse affect on local and state economies dependent on fossil fuel production.

Following up the President’s challenge, the interior department just announced a $50 million program to expedite the development of wind farms off the coast of the Mid-Atlantic States, as well as a $25 million program to support new and existing wind turbine technologies. While these stately wind turbines look good in theory, the reality is much more controversial. It took eight years for the final approval of the nation’s first wind farm off the coast of Cape Cod, over much opposition from environmentalists, Indian tribes, and the tourist industry. Imagine for a moment how those rows of wind turbines might look from Hilton Head Island's beaches.

While several large players including General Electric (GE) and Vestas Wind Systems (VWSYF) are at the forefront of wind turbine technology, there are also many other smaller companies in the sustainable power industry that may become tomorrow's blue chips and industry leaders. 2010 was a difficult year for many alternative energy companies, as prices for wind turbines took a steep decline. This may present a buying opportunity for long term investment in these areas. There are many funds that focus on sustainable energy; here are a few worth looking at.

PowerShares, one of the most active sponsors of exchange traded funds, has several offerings that cover alternative energy.  PowerShares Cleantech (PZD) recently trading at $27.77, is an exchange traded fund started in 2006 designed to track a proprietary equally weighted index of stocks of publicly traded US and global cleantech companies. It has $147 million assets, and annual expenses of .71%.

PowerShares also has an ETF that invests in wind energy. The Global Wind Energy Portfolio, (PWND), tracks the Clean Edge Global Wind Energy index, including manufacturers, developers and distributors of energy derived from wind sources. This fund was started in 2008, and has annual expense of .75% of assets, and recently sold at $10.33 per share.

A third alternative is the Global Alternative Energy ETF (GEX), offered by Market Vectors.  This fund, started in 2007 and now holding $134 million assets, seeks to track the Ardour Global Index, a capitalization-weighted universe of listed companies engaged in alternative energy, alternative fuels and related technologies, with market cap exceeding $100 million. This fund has an expense ratio of .66%.

Prudent diversified investment in sustainable energy investment alternatives can offer tremendous opportunity. These funds, however, should be considered concentrated because of their sector orientation, their exclusionary selection criteria, the relative smaller size of many of the companies, and risk factors associated with overseas investing. With these cautions in mind, make sure you select your sector investments with an eye toward your overall asset allocation and investment plan.

Steven Weber is the senior investment advisor for The Bedminster Group, providing investment management, estate, and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the author and do not necessarily reflect those from any other source. The discussion of securities in this article should not be construed as a recommendation or solicitation to purchase.

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