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What are the Different Types of Renewable Energy Funds?

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  • Written By: Geri Terzo
  • Edited By: A. Joseph
  • Last Modified Date: 25 August 2016
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Investors can select niche securities to bet on in just about any industry, including alternative energy. There are renewable energy funds, which are investment portfolios such as mutual funds, comprised of securities across sectors including wind power, solar energy and geothermal power, for instance. Investors can also gain exposure to renewable energy funds via exchange-traded funds (ETFs), because these index investment vehicles can focus on specific sectors, such as the alternative energy industry.

ETFs are indexes that track the performance of underlying securities, mainly stocks. Investors can pretty much be as specific as they want to be when selecting an ETF because there are many options. A wind power ETF, for instance, is designed to track the performance of and generate similar returns to an industry barometer tied to the same category. By checking the historical performance of these indices on a financial website, an investor can gauge expectations for returns or profits in addition to periods of declines.

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There are also ETFs that focus on solar power investments. These investments can be purchased and sold the way stock transactions are done. They also can be a risky bet because performance often can be tied to energy prices, which are volatile, and government incentive programs. During times of heightened focus by a particular government in a region, alternative investments tend to be a popular choice and perform well, but as soon as energy prices fall and there is less attention devoted to this sector, investors could see their investments falter.

In addition to ETFs, there also are mutual funds, specifically renewable energy funds that are comprised of securities tied to this sector. For a stock to be worthy of being included in socially responsible mutual funds such as renewable energy funds, a significant portion of its business must be tied to renewable energy. It is up to the professional money manager to decipher which investments meet these criteria and buy and sell shares accordingly. Mutual funds can be entirely renewable energy funds or have a portion of the portfolio devoted to the sector, and by reviewing the firm’s documents, such as a prospectus filed with the regulatory agency in a region, an investor can learn the approach of that firm.

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