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How do I Choose the Best Alternative Energy Funds?

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  • Written By: Bobby R. Goldsmith
  • Edited By: Susan Barwick
  • Last Modified Date: 15 November 2016
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Choosing the best method to invest in alternative energy funds may seem daunting, but it is actually a straightforward process. The most common vehicle for investors interested in alternative energy is through exchange traded funds (ETFs) that seek to invest in high performing yet stable, sustainable energy projects. Alternative energy funds seek opportunities with consistent performance and potential for growth. Choosing the right type of fund depends greatly upon the needs of each individual investor.

An investor can examine the six-month and year-to-date performance of the alternative energy funds in which they are interested. If an investor has a strong preference for investing in a specific type of renewable energy technology, this preference will narrow down the possibilities. For investors interested in wind turbines, solar energy, or biofuels, there are several heavily-traded ETFs that take advantage of the lengthy track record of those technologies. Some alternative energy funds also include stock in companies that make mainstream energy sources more efficient through better performing appliances or streamlined energy production processes.

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Investors interested in newer forms of alternative energy such as hydrogen fuel cells, heat reclamation projects, cold fusion, algae farming, and other early-stage developmental technologies will find fewer options for investment through alternative energy funds. The reason for this is twofold. First, few publicly traded companies are working to develop these technologies. Second, in 2011, the ones that have gone public do not have much of a track record of solid performance, which makes the managers of alternative energy funds hesitant to include them in their fund portfolios.

Those interested in investing in alternative energy technologies with the relative safety provided by an exchange fund would be best served by sticking with the more developed areas of wind and solar power. Companies that feature nascent technologies not only lack the track record for fund inclusion, the nature of their stock performance is often more volatile. Stocks for these companies tend to rise and fall rapidly with each headline-generating success or failure.

Once an investor has examined the performance of several alternative energy funds, he or she should then consider the reputation of the fund managers. While some investors look for an aggressive fund manager who will take risks in order to maximize returns, this style is not the best fit in all situations. Some investors are better served by a more conservative fund manager who seeks modest performance through a passive style of managing the fund.

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