Wind power is widely seen as the alternative energy source that's closest to prime time. Wind can compete head-to-head on a cost basis, without subsidies, with most other kinds of electrical generating power.
First Trust launched the first wind-power ETF in the U.S. on June 17, with the First Trust ISE Global Wind Energy Fund (ticker: FAN). Robert Carey, chief investment officer for First Trust, spoke with the editors of HardAssetsInvestor.com about how the new fund works and where it might fit in an investor's portfolio.
HardAssetsInvestor.com (HAI): What gave you the idea to launch a wind ETF?
Robert Carey, chief investment officer, First Trust (Carey): We've actually been looking at a whole variety of alternative energy ideas for quite some time, including the wind space. It is a big focus of ours and an area in which we are making a big investment going forward.
HAI: How does the underlying index work?
Carey: The index is pretty straightforward: Two-thirds of the index is invested solely in "pure plays." There are companies where wind is their main business, whether they operate a wind farm or are involved in equipment, infrastructure, technology or transmitting energy [from a wind farm to a power grid]. Wind is the primary focus of these companies' business.
The other one-third of the index consists of companies that are in involved in wind in some form, but not as the only thing they do. General Electric is the classic example, but you can look at a company like BP and see that it is involved in wind as well.
These conglomerates play an important role in the industry, but if we had done a traditional market-cap weighting of all the companies in the space, the index would have been dominated by big energy companies and big oil companies that don't have wind as their main focus. The two-thirds/one-third approach creates a balance between the two.
HAI: How has the index performed on a historical basis?...MORE