Going green is an investment in terms of the planet’s future, but it’s also a potential investment opportunity for those who wish to make money from the transition from traditional energy sources to renewable ones. This is done primarily by investing in index funds that track companies that produce or benefit from clean and alternative energy.
There are many different alternative energy indexes, with around a dozen of them incorporating global companies. As indexes are entirely mathematical constructs, they cannot be invested in directly; instead, index funds attempt to mirror the performance of them. These funds can then be invested in through products such as ETFs and CFDs, offered by brokers like www.alpari.ae. Traders could potentially buy stocks in all of the companies that feature in an index, but this would incur major admin fees, and is less profitable than simply investing in a fund, even when taking management costs into account.
It’s very important to study a fund’s components carefully, or you risk investing your money in traditional energy sources such as gas and coal. As an example, RENIXX World was the first global index to cover the top 30 companies involved in renewable energy, but to meet the criteria, a company need only achieve a minimum of 50 percent of revenue coming from the renewable energy industry.
If you want to ensure that you’re only going to benefit from clean energy, then you should look for companies that are considered to be ‘pure play’. They are ones whose have as close to as is possible, a single business purpose, and that is in the clean or renewable energy sector. This covers both the production of this kind of energy, but also companies that develop technology that is designed to benefit the industry.
You may also have a particular area of alternative energy that you believe is going to be the future, in which case you should look for an index that is weighted towards it. Again, this will require some research. In addition to the global indexes, there are also regional ones, for both countries and economic areas, which may suit you better.
The final thing to not when choosing an index, is that they can and do change composition as the fortunes of different companies change. An index might be based on a predetermined set of companies, a predetermined number of the top companies, or there may be a liquidity or market capitalisation filter, which means that the number of companies may fluctuate.
There are of course other ways of investing your money in an environmentally friendly way. You can trade carbon credits (which should not be confused with carbon offsets), which are allowances for companies to emit CO2, but these are particularly controversial. You can also directly invest your money by buying stocks and shares in green companies, but this can carry more risk than funds, because you’re placing your faith in a company, rather than an industry.
If you’re looking for environmentally conscious investment opportunities, and would prefer to put your money in the future of green energy rather than a single company, then indexes could well be for you. As with all investments, it’s vital you do your research, as there are considerable risks involved.