Green ETF: Investing in Feel-Good, Eco-Friendly Companies

The trend to “go green” is increasing in popularity. In fact, I heard today that demand is so high that there's even a $1 billion market for all natural pet products. Yes folks, if you're going to go green you're likely to take along your cat or dog with you. The exchange traded fund (ETF) providers have noticed this trend and now individuals can invest their money in companies that do good by the environment.

Two offerings from PowerShares take an approach that targets companies that are in the business of environmental innovation. Powershares Wilderhill Clean Energy (PBW) seeks out businesses that innovate in energy industry. The PowerShares Cleantech Portfolio (PZD) takes a broader approach and buys shares of technology companies that make positive impacts on the environmental. Both exchange traded funds skew towards small-cap i.e. 59% of PBW and 54% of PZD are composed of small-cap growth companies. The management fee for both ETFs is .60%.

Although at first blush these two offerings might seem like good candidates for the buy-and-hold investor, they are probably more appropriate for active trader. This is because neither is particularly conservative and analysis by Forbes.com of the underlying index reveals a high-level of volatility with years of losses greater than 30% and other years with returns greater than 30%. Certainly not for the faint of heart. Still, investors with a keen interest in the environment may not hold returns as high a priority as knowing that their investment money is being used to make the world a better place.

Comparing the Returns of SPY vs. PBW and PZD Over the Last 3 Years

For me, these ETFs are too specific to fit within my investing philosophy.