Are Alternative Energy Mutual Funds A Wise Investment?

One of today’s most enticing financial concepts is that of green energy investing through an alternative energy mutual fund. After all, it seems like now would be the perfect time to get onto the ground floor of these opportunities since they are presumably bound to ratchet upwards eventually. While this seems to be a likely possibility, the question is not what renewable energy mutual funds will do over the long run, but what they will do in the meantime.

Another way is if these green investments are going to simply mark time for several years before taking off, a wise investor is probably better off putting their money into something that will grow in the meantime, and then shift over once the green train finally leaves the station. This strategy may not lock in one hundred percent of the alternative energy profits but it will grab the lion’s share of them. In addition, if an investor parks their funds into something that will grow in the meantime, it probably means that there will be more funds available to go green when the time to shift asset classes finally comes.

A quick glance at the performance of several alternative energy mutual funds reveals the risk involved in getting onboard too early in the process. The Guiness Atkinson Alternative Energy Fund (GAAEX) has turned a January 1, 2010 investment of $10,000 into less than $8000 at a time when the broader market has been rising all year long. New Alternatives (NALFX) has turned $10,000 into about $9300. PowerShares Cleantech (PZD) has done a little better and actually gone from an opening of 25.00 to a close of 26.40 on December 31, 2010. PowerShares WilderHill Clean Energy has dropped from 11.35 to 10.39. Finally, PowerShares WilderHill Progressive Energy (PUW) has climbed from 24.45 to 28.13.

What these randomly selected alternative energy funds all reveal is that even the best of them is not producing any significant income growth while the worst are bleeding money at an alarming rate. Many of the analytical risk assessments on these funds are extremely cautious about advising investors to participate in these financial vehicles at least in the near term. A more conventional investment portfolio would probably outperform these funds just on the basis of dividend returns alone, not to mention appreciation in the stock price. Now, these are clearly investments of the heart rather than of the head.