What is an Alternative Energy ETF?

The alternative energy ETF is a kind of exchange-traded fund, or ETF, that focuses on “green economics”: the production of alternative fuel sources, often renewable ones like wind and solar, instead of finite resources like coal and oil. An ETF is a collection of stocks or equities that provides easy diversification; instead of getting just one stock, investors buy just one ETF that contains lots of different stocks, but offers a single ticker symbol and fluctuating price. There are many different kinds of ETFs, not just for stocks, but for bonds, commodities, and lots of other investing options.

An alternative energy ETF will often include specific stocks of companies that create renewable fuel sources, or collaborate in driving research. Some of these stocks may be tied to a greater national index, while others just happen to be on one national exchange or another. Some alternative energy ETFs might focus on companies in the large expanding economies of the four BRIC countries, Brazil, Russia, India and China, that investors are predicting as generating large future growth in the alternative energy sector.

Lots of stocks involved in an alternative energy ETF will involve creating products for solar or wind energy. Others might focus on “biofuels,” for example, where companies are looking at how to generate power with switchgrass or other crops. At the extreme end of the spectrum, there may even be alternative energy stocks involving the idea of “animate power” where humans or animals generate power through action, as in the example of stationary bikes hooked up to a local power grid.

The alternative energy ETF is a popular choice for green investing, partially because of the diversification that it offers. Owners of an alternative energy ETF can be exposed to more than one alternative energy effort or “green company” project, with a single price that they can track over the Internet. Lots of ETFs also offer intraday transactions, where buys and sells are always an option of volatile market situations. Yet another benefit of the alternative energy ETF is that it gives more of an incentive for sustainable business; as companies look at the popularity of these investment products, they can see that there are many individual investors ready to back projects that will help conserve resources and solve the problems of the future. Governments around the world are creating incentives for green business, but the role of helpful alternative energy investment products should not be discounted, since the power of private money is usually a large part of greater market changes.