Wind Power ETFs (PWND,FAN) Buying Guide – Top Ideas in Wind Energy Investment ,Types of Wind Stocks

Investing in Wind Energy is not easy with hundreds of companies involved in different parts of the Wind Supply Chain spread around the globe.Many of these companies are not listed on the US Stock Exchanges and for many retail investors (even larger investors) Wind ETFs are the only cost effective way to get exposure to foreign wind power stocks.So you may miss out on best wind energy investment idea if you just look at the mainstream ideas in Wind Energy in the US.Also US with the exception of General Electric has no company in the top 10 global Wind Turbine rankings making things even more difficult.This article exhaustively looks at the Wind Energy ETFs and  top Wind Energy stocks in the world.

Two Types of Wind Power Stocks

1) Wind Supply Chain Manufacturing Stocks – These companies are involved in the supply chain of manufacture of wind turbines and their logistics.A Wind Turbine consists of many  parts like nacelles,gearboxes,towers etc.With Offshore Wind Energy becoming the fastest growing part of Wind Energy,moving these giant turbines over the water has become big business as well

2) Wind Utilities – These are companies which do not make wind power equipment rather they use it for generating power.The expertise of these companies lies in the development of Wind Farms and selling the electricity.There are some companies which are exclusively devoted to Wind Energy Development like First Wind,however most utilities in the world are now using Wind Power to some extent

Wind Power ETFs

The USA has only 2 listed pure play Wind ETFs FAN and PWND both of which have seen sharp declines in the last 2 years as Green Company stocks have faced a tough time with the indifference towards global warming and rising competition from low cost Chinese companies (not unlike the Solar Industry).Both the ETFs are analyzed below.Note for most investors who don’t follow Green Energy Investing full time,a Wind Energy ETF may be the only option though risker than buying a general broad Green ETF like PZD or PUW

1) First Trust Global Wind Energy (ETF)(NYSE:FAN)

a) Index – FirstTrust Global Wind Energy ETF (the Fund) is designed to track the performance of the ISE Global Wind Energy Index.

b) Style Allocation  and Valuation

Number of Holdings 58
Median Market Cap. $2.44 Billion
Price/Earnings 16.13
Price/Book 1.04
Price/Cash Flow 7.46
Price/Sales 0.90

c) Country Allocation (in Percentage)

Spain 25.70%
United States 15.79%
Germany 15.46%
China 6.98%
Denmark 6.92%
Hong Kong 4.92%
Australia 4.04%
Belgium 3.95%
Sweden 3.34%
Japan 2.25%
Other 10.65%

d) Top Holdings(in Percentage)

EDP Renovaveis SA	8.18
Hansen Transmissions	8.16
REpower Systems AG	7.29
Iberdrola S.A.	7.19
China Longyuan Power Group-H	6.19
Vestas Wind Systems	5.76
Gamesa Corporacion Tecnologica, S.A. (Gamesa)	3.91
China WindPower Group Limited	3.45
Nordex AG	3.37
Arise Windpower AB	2.67

 

e) Performance

 2009 26.01%
2010 -31.42%
6/30/11 2.32%

You can see the latest performance and charts of FAN over here

f) Expense Ratio

The Net Expense Ratio of this ETF is 0.6%

ANALYSIS

FAN is the biggest Wind ETF with $32 million corpus however like other Wind Stock Investments it has taken a massive beating in 2010 and 2011 after doing a par 2009.This Wind ETF however suffers from a 2 year old mindset in the sense that it has not given enough weightage to China which is the dominant power in Wind Energy today.It has still got holdings of mostly European Wind Energy Companies and Utilities like Enel Green Power which are not the driving forces of growth.It has got too many stocks in the portfolio though the expense ratio is okay at 0.6%.This ETF has lower volatility than PWND but does not get high marks from me.With 25% weighting towards Spain which has passed over the hill in Wind Power Maturity it hardly looks like a Growth ETF which a Wind ETF should be.FAN is not a good Wind ETF to invest because of the old nature of its holdings which do not reflect the Wind Energy Industry of 2011.

2) Power Shares Global Wind Energy (ETF)(NYSE:PWND)

a) Index The PowerShares Global Wind Energy Portfolio PWND (Fund) is based on the NASDAQ OMX Clean EdgeGlobal Wind Energy Index

b) Style Allocation(in Percentage) and Valuation

Large-Cap Growth 33.62
Large-Cap Value 5.75
Mid-Cap Growth 37.44
Mid-Cap Value 1.36
Small-Cap Growth 12.93
Small-Cap Value 8.90

Number of Holdings 30
PE Ratio 17.10
PB Ratio 0.86

c) Country Allocation (in Percentage)

China 14.69
France  12.54
Germany 12.37
United States 12.32
Italy 10.59
Denmark 8.84
Canada 4.55
Cayman Islands 4.41
Switzerland 4.09
Spain 4.06

d) Top Holdings(in Percentage)

EDP Renovaveis S/A  10.64
Enel Green Power S.p.A.  10.59
China Longyuan Power Group Corp. Ltd. 10.35
Vestas Wind Systems A/S  8.84
Innergex Renewable Energy Inc.  4.55
China Ming Yang
Wind Power Group Ltd. ADS  4.41
China High Speed Transmission
Equipment Group Co. Ltd.  4.35
American Superconductor Corp.  4.14
Nordex SE  4.12
China WindPower Group Ltd.  4.02

e) Performance

 2009 39.13%
2010 -34.62%
2011 YTD -0.97%

You can see the latest performance and charts of PWND over here

f) Expense Ratio

The Net Expense Ratio of this ETF is 0.75%

ANALYSIS

PWND is a good Wind ETF with strong weighting on China and Wind Utilities.Note the center of Wind Energy Manufacturing and Development has shifted towards China from the Western world with almost 50% of the world’s wind power installations happening in China in 2010.7 out of the top 15 Wind Turbine Manufacturers are now from China which makes it very important that Top Wind Energy Investments have a substantial weighting on Chinese Wind stocks.PWND has a good combination of Wind Utilties and Wind Turbine Stocks from China which gives exposure to the biggest wind power market in the world.It has also got a decent investment in top Wind Utilities in Europe which still have the biggest wind farm portfolios in the world.With 30 stocks,it has not over diversified as well with good concentrated holdings in top wind power stocks.While 0.75% expense ratio is slightly high it is not a deal killer.The 2010 and 2011 performance of Wind Energy has been dismal to say the least with the Copenhagen Global Climate Change Meeting going to the dogs in 2009 end.However there remains little alternative to Wind Energy as Coal,Gas and Oil get increasingly scarce,costly and are continuing to pollute the environment.With only $19 million left as the corpus PWND may not continue long,however if it does it might be the best time to invest in a good WInd Energy ETF when the sector is so unloved.PWND is the best Wind Energy ETF and probably the best wind stock investment out there

You can also read about Solar Energy ETFs for ideas on how to invest in the Solar Power space.

Wind Turbine Stocks

Here is a list of the top Wind Turbine Manufacturing Stocks in the world.While Wind Turbines are not the only Wind Energy Investment Ideas,they form an important chunk.

1) Vestas – Vestas the largest Wind Turbine Company in the World has been facing one setback after another.The Danish Company which used to be a Green Investor Favorite till a couple of years can’t seem to find a buyer these days.Stiff competition from China,Slowdown in Wind Energy Farms in the West and now  Wind Blade Problems have formed a perfect storm for this company.

2) General Electric (USA) – General Electric is looking to Invest Heavily in the new Age Green Industry like other Industrial Giants like Siemens,ABB etc.General Electric or GE as it is popularly known is one of the biggest players in the Green Industry globally.It generated $18 billion in Ecomagination revenues in 2009 with $1.5 Billion in Investment.General Electric like other industrial conglomerates like Siemens,Areva and others are in fact low risk plays in the Green Investing sector.GE is strong across most of the Green Sectors today particularly in the area of Smart Grid and Energy Efficiency.GE has a 40-50% marketshare of the US market which is the 2nd largest in the world.Due to its vertical integration,it has one of the highest margins in the industry and remains a formidable player with its acquisition Enron’s Wind Turbine arm proving to be a masterstroke.

3) Gamesa (Spain) – Gamesa the Spanish Wind Turbine Producer and Wind Farm Operator has faced the worst year of its history in 2010.Like Vestas and Suzlon,2010 has been a cruel year for the Wind Industry in the Western Markets and the WTG Players dependent on those markets.Gamesa is one of the worst performing Wind Energy Stocks in 2010.Gamesa is looking to restructure its operations and concentrating on the offshore wind market by focusing on higher megawatt turbines.Gamesa is leading a massive Spanish Research Effort to develop a colossal 15 MW Turbine meant for the fast growing offshore wind sector.But this is a long term plan with 2020 set as the target for the complete development of this new Turbine.Meanwhile Gamesa has become the target of takeover speculation by one of the bigger Chinese Wind Turbine players like Sinovel,Goldwind etc.Gamesa has seen its revenue fall by 28% and profits by  71% with Operating Margins of 4-5%.Things don’t look too good for 2011 either though Orders have started ticking up

4) Suzlon Energy is the biggest Indian Wind Energy Company by far with 4-5 Gigawatts of WTG Capacity per year.However Suzlon has languished in red ink since the beginning of the Global Financial Crisis in 2008.The company started by Tulsi Tanti in 1995 was a shining example of Asian CleanTech with a 10% global marketshare and ranking amongst the top 5 Wind Turbine Makers .Suzlon buoyed by its success had bought controlling equity stakes in Turbine Gears producer Hansen Transmission and European Wind Turbine producer Repower.Suzlon seems to be recovering with increase in orders particularly at its German subsidiary RePower,however a huge debt burden poses problems.

5) Siemens – The largest Green Company in the world,Siemens has a strong presence in the Wind Turbine Segment.The company is strong in Europe and is now expanding to emerging markets like Asia.Given its huge technological strengths in electrical equipment,power transmission and large project construction,Siemens is looking for a dominant role in the growing offshore wind market as well.

6) Goldwind – The Wind Energy Market in China has witnessed the growth of almost 90 companies with little differentiation competing fiercely on prices.This has led to low to zero margins for most of these companies.Goldwind has managed to rise above the competition by becoming the single largest Chinese player and looks to takeover the No.1 position in the world in the next few years.By taking bold risks and with the support of the government,Goldwind has become a threat to the established Wind Turbine Order

7) Sinovel – The 2nd largest Chinese Wind Power Company managed to do a successful IPO in Hong Kong last year despite long delays.The company is looking to expand in the foreign markets particularly the US market and has gotten a local management to help it penetrate the newer market.

8 Dongfang Electric – Dongfang Electric Corporation,China’s largest power equipment producer  is also the 3rd biggest Wind Turbine Producer in China as well .The company has managed to grow impressively like the rest of the Chinese and is looking to expand in foreign markets as well.Recently  bagged a 276 MW $203 million WTG supply contract with Abhijeet Group.

9) Ming Yang Power- Ming Yang is the only significant non-state owned Chinese Wind Energy Company with a 2009 marketshare of around 4%.The Company has a very short history installing its first Wind Turbine just 2 years ago and has seen an exponential growth riding on the incredible Wind Industry Growth in China.

 10) Mitsubishi Heavy Industries , the massive Japanese Conglomerate is looking to overseas market for growing its Wind Energy Division.Mitsubishi like other Japanese companies are looking towards Green Industry for growth.Japan already possesses solid strengths in this area with its traditional focus on resource efficiency.While companies like Panansonic and Toyota looks towards Electric Vehicles and Batteries,Sharp and Kyocera towards Wind Energy,Mitsubishi is focusing its energy on the Wind Sector.

11) Enercon – Enercon is a privately listed German company which has almost 22 GW of Wind Turbine Installations in the world.Enercon was the first company to build a gearless Wind Turbine which is one of the biggest innovation in the Wind Energy Industry in recent times.

12) Nordex – Nordex is another German company in the Wind Turbine Industry which was the first one to build a 1 MW Turbine.The company has  not managed to grow fast as the other German companies like Enercon,RePower and Siemens.

13) United Technologies Corporation (UTC) – This US Giant Technology Conglomerate is still a small player in the World Wind Power Market.However it has increased its footprint by acquiring struggling independent US Wind Power company Clipper.

The list of the top Wind Turbine Companies in the world is changing rapidly with the entry of the Chinese companies such as Goldwind and Sinovel.Though it will take time for these companies to penetrate the foreign markets,their low cost has made the formidable rivals though quality remains suspect.On the other hand foreign WTG Leaders like Gamesa,GE,Suzlon are rapidly expanding in China and other emerging markets to lower their costs and gain access to these fast expanding markets.Newer companies like Samsung,Hyundai,Northrop  Grumman are also entering the Wind Power field as Offshore Wind Energy becomes a multi-billion dollar industry