High Oil Prices Drive The Quest For Alternative Energy
Although not necessarily a category of high yield mutual funds, investments in alternative energy have heated up in the past years due to a combination of technological progress, price pressure from oil, and unrest in the Middle East.
By now it is almost a sure bet that oil will spike at some in the future (think back Gulf War I and II, Hurricane Katrina, Tunisia, Egypt, Libya in uprisings of 2011) causing financial chaos and reduction in economic growth due to higher commodity costs. The one bright spot whenever there is a crisis is the positive attention paid to alternative energy.
Clean Versus Dirty Energy Sources
Alternative energy funds invest in stocks of the top companies that work on or produce technologies that reduce our reliance on oil, coal and other so-called "dirty" energies. By "dirty" it is mean here that consumption of energy produces carbon dioxide - the much-vilified greenhouse gas thought to be responsible for global warming. "Clean" energy sources include those derived from solar energy, wind energy, hydroelectric, ocean waves and certainly others which are not net producers of carbon. The problem has always been that these technologies are capital intensive requiring production of expensive solar panels, or arrays of large windmills, or even a monstrous dam. Many of the modern companies are aiming to reduce costs by improving the technology especially in the realm of solar.
Ethanol And Biofuels Are Not Good Long-term Solutions
In recent years there has been lots of policy talk and legislation at the Congressional level aimed at subsidizing biofuel productive capacity to increase its share of energy supply in the U.S. Biofuel is the creation of fuels such as ethanol (that can be burned in some combustion engine cars) from traditional food sources. Brazil is a major participant in this area as it has leveraged its world-class sugar cane production to make ethanol. However, most scientists think that biofuels are not good long-term solutions that will collapse when subsidies end. The reason is that biofuels require a tremendous amount of farmland, a need that will clash with stronger pressure from food price inflation as the people of the emerging economies of China and India ramp up caloric intake.
Alternative Energy Mutual Funds
There are not many mutual funds focused solely on alternative energy mutual funds because the number of medium-sized or small-sized companies is very limited. But there are a handful of the best alternative mutual funds - some more successful than the others. The funds that we focus on at this website are Guinness Atkinson Alternative Energy, Calvert Global Alternative Energy Fund, Fidelity Environment and Alternative Energy Portfolio, and Firsthand Alternative Energy. Check out more top alternative energy mutual funds
Volatility Is An Important Consideration
The prices of these funds and their underlying stocks tend to fluctuate strongly with respect to external events. For example, when Congress spent much time praising the merits of ethanol fuels, there was tremendous interest and run-up in prices for companies working on such technologies. However, when subsidies were reduced according to budgetary constraints, much of the clamor died down with a corresponding fall in fund value. The problem of course is that alternative energies lie at the volatile intersection of energy, oil, and revolutionary (read: untested) new technologies.