Is Electricity From Wind Just A Lot Of Hot Air?

Tuesday June 17, 5:47 pm ET
Joanne Von Alroth

You could think of it as “energy sailing.”

Hoping to catch the financial breeze powering alternative energy, First Trust Advisors will launch the world’s first wind energy exchange traded fund on Wednesday. The First Trust ISE Global Wind Energy Index Fund will trade on NYSE Arca under the ticker FAN.

The new fund will track a three-week-old index with 53 companies that are active in the wind energy industry. Nearly 67% of the listed companies must provide products and services exclusively to the wind energy industry. The other 33% must have a “significant” part of their business devoted to wind energy, said First Trust Chief Investment Officer Robert Carey.

All the companies must actively provide or develop wind energy and have market caps of at least $100 million. The index, owned and developed by the International Securities Exchange, is calculated in real time and maintained by Standard & Poor’s. It will be rebalanced semi-annually.

Soaring Oil

It’s no coincidence that the fund sets sail just as oil hit a record high Monday of $139.89, Carey said. “This has been a matter of some urgency. We’ve been working very hard on it for about six months” as oil prices skyrocketed, he said.

“In addition to rising oil and natural gas prices, there’s supply security and mitigation efforts related to environmental problems and climate change,” he said. Global warming issues aside, wind energy proponents point out that its use reduces acid rain and oil spills.

Industry Growth

Ten years ago, the U.S. had less than 2,000 megawatts of wind capacity. Last year, wind energy generation companies saw 27% growth as they boosted their capacity to 94,000 megawatts. A megawatt — 1 million watts of electric power — provides power for about 380 U.S. residents, according to the American Wind Energy Association.

The Worldwatch Institute estimates that turbines in all 48 contiguous states could provide about 20% of U.S. power needs.

“Most of the interest and use has been in Europe up until now, but we think we’ll see that growing fast in the U.S. and in Asia,” Carey said. “The idea with the ETF is to give investors as pure a play on wind as you can get.”

Many of the fund’s largest holdings are European and Asian companies that don’t trade on U.S. markets. The top three holdings are Vestas Wind Systems of Denmark, Hansen Transmissions International of the U.K. and Spanish wind giant Gamesa.

On Tuesday, Gamesa and fellow Spanish company Iberdola Renewables agreed to the largest turbine supply contract ever.

Of the American-listed companies, Woodward Governor (WGOV) currently has an IBD Relative Strength Rating of 94.

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