The alternative energy industry is growing rapidly as individuals, companies and governments increase their use of power generated by solar, wind, geothermal, water and other sources. Global renewable electricity capacity is expected to rise more than 60% by 2026 to 4,800 gigawatts, which is equal to the current total global power capacity of fossil fuels and nuclear combined, according to the International Energy Agency (IEA). As a result, investors increasingly are focusing on alternative energy companies as potential longterm generators of profit and revenue growth. Well-known alternative energy companies in the industry include SunPower Corp. (SPWR), First Solar Inc. (FSLR), and Enphase Energy Inc. (ENPH).
Alternative energy equity mutual funds provide investors with professionally managed exposure to many companies involved in a broad range of clean energy-related businesses at all stages of solar, hydrogen, wind, geothermal and hydroelectric energy generation. Some of these funds venture beyond energy and have biotech holdings. Investors seeking to invest in this sector may consider these mutual funds an option.
- Alternative energy mutual funds have underperformed key benchmarks in the past year.
- Three leading alternative energy mutual funds ranked by one-year trailing total return are GAAEX, NALFX, and NEXTX.
- The top holdings of these funds are First Solar Inc., EDP Renováveis SA, and Moderna Inc., respectively.
We look at three alternative energy mutual funds as ranked by their one-year trailing total return (TTM) as of Dec. 20, 2021. The first two funds on our list, GAAEX and NALFX, can be compared to the benchmark world small- and mid-cap stocks category and the Morningstar Global Markets SMID Cap Index. The 1-year trailing total return for the broader category was 8.7% and the total return of the index was 11.6%. GAAEX outperformed the category but underperformed the index over the same period, and NALFX underperformed both the category and the index.
The third fund on our list, NEXTX, can be compared to the benchmark mid-cap growth category and the Morningstar US Mid Cap Broad Growth Index. The broader category provided 1-year trailing total returns of 7.4%, and the index has a total return of 12.8%. NEXTX underperformed both the category and the index.
The performance data above and all figures below are as of Dec. 20, 2021.
- 1-year trailing return: 10.2%
- Expense Ratio: 1.98%
- Trailing-Twelve-Month (TTM) Dividend Yield: 0.00%
- Assets Under Management: $32.4 million
- Inception Date: March 31, 2006
GAAEX is managed by Will Riley and Jonathan Waghorn. The fund invests at least 80% of its net assets in equity securities of both alternative energy companies based in the U.S. and other nations. Though the fund invests across the market capitalization spectrum, it targets companies with a minimum market cap of $500 million. Technology stocks make up over a third of invested assets, followed by utilities and industrials. The fund is roughly split between U.S. and non-U.S. stocks, although the latter occupy a slightly larger portion of the portfolio. The top holdings of GAAEX include First Solar Inc. (FSLR), a maker of solar panels, equipment, and infrastructure; class A shares of Ameresco Inc. (AMRC), a renewable energy solutions company; and Aptiv PLC (APTV), an American auto parts manufacturing company domiciled in Ireland.
- 1-year trailing return: 2.5%
- Expense Ratio: 0.96%
- Trailing-Twelve-Month (TTM) Dividend Yield: 4.88%
- Assets Under Management: $445.0 million
- Inception Date: Sept. 3, 1982
NALFX is managed by David J. Schoenwald and Murray D. Rosenblith. The fund invests in stocks in industries that produce products and operate facilities that both benefit the environment and replace the use of fossil fuels. NALFX focuses on renewable energy. More than 60% of the fund’s holdings are non-U.S. stocks, while about a third are companies based in the U.S. The fund tends toward mid-cap companies and utilizes a blend of value and growth stocks. The top holdings of NALFX include EDP Renováveis SA (EDPR.LS), a Spain-based developer and operator of renewable power plants; Clearway Energy Inc. (CWEN), a wind, solar, and other renewable energy company; and NextEra Energy Partners LP (NEP), a renewable energy company.
- 1-year trailing return: -0.7%
- Expense Ratio: 1.28%
- Trailing-Twelve-Month (TTM) Dividend Yield: 0.00%
- Assets Under Management: $328.0 million
- Inception Date: March 12, 2013
NEXTX is managed by Jeremy Deems and Garvin Jabusch. The fund aims to achieve long-term capital appreciation by investing in stocks in the green economy. NEXTX primarily invests in stocks selected by Green Alpha Advisors, the fund’s investment sub-adviser. Green Alpha focuses on companies that with above-average growth potential and which are reasonably valued. Just over two-thirds of the fund’s assets are allocated toward U.S. stocks, and the fund tends toward mid-cap growth positions. The top holdings of NEXTX include Moderna Inc. (MRNA), a pharmaceutical and biotechnology company; American depositary receipts (ADRs) of Vestas Wind Systems A/S (VWDRY), a Danish maker of wind turbines and related products; and ADRs of JinkoSolar Holding Co. Ltd. (JKS), a China-based solar panel maker.