ETF Expert

Three of the biggest blockbuster ideas that I’ve heard over the last 12 months include:

A. Biotechnology represents the fountain of youth for aging baby boomers.
B. Nanotechnology is the future of engineering, science and healthcare, as everything that we manufacture will be on a molecular or atomic level.
C. The worldwide concern for the earth’s atmosphere coupled with sky high oil prices will drive an innovative culture for alternative energy technologies.

Each of the above-mentioned ideas have surface appeal; in fact, it’s hard to argue against the theories on any level.

Still, do the trends described above translate into sure-fire profits for investors? (Dot-com investors learned the hard way in 2000. Cell phone enthusiasts witnessed many a terrifying year between 2000-2005.)

So what about biotech and nanotech over the last year? In spite of all the fan fare that surrounded "nano," the PowerShares Lux Nanotech Index Fund (PXN) laid a goose egg (0% return) over the last 12 months. That’s pretty dismal when compared to the broader market’s 18% from 6/12/06 to 6/11/07. And while the Powershares Dynamic Biotech Fund (PBE) may be able to claim 15% in this arbitrary time period, one can take note of the extreme volatility and risk required for less profit. (See the graph.)

What about the third wave of change… alt energy? While "green" may be a wave of the future, riding the wave to make some green requires careful consideration.

Indeed, investors who wish to capitalize on a possible shift towards alt energy have a fair number of ETFs to look at. Here are 3 that come to the keyboard:

1. Powershares Wilderhill Clean Energy (PBW). How should an investor who wants a piece of the green eggs and alternative ham energy regard this fund? A long-term hold? A buy-the-dips mentality? One has a index that is comprised of 70% small-company stocks, most of which fall under-the-banner of "information technology." Clean and green may be the desire, but this fund’s one-year return is as inauspicious as nanotech. High p/e ratios, extreme volatility, and the potential to drop 35% in a manner of weeks. Not for the faint of heart… that’s for sure… though it has been trending higher.

The Powershares Progressive Energy (PUW) has a bit more going for it than its more popular predecessor; that is, there’s more diversification across segments of the economy, with a greater concentration on industrial stocks. And while small companies do dominate here, the focus is on the improvement of existing technologies more than speculative alt energy. (Other than the February sell-off that took the world by storm, PUW has been traveling north by northeast.)

3. Market Vectors Global Alternative Energy (GEX). Ironically, the global green investing opportunity may be the wisest. I say this because it tilts towards more established larger companies on the global scene, providing a bit less speculation as well as diversification across the world’s alt energy specialists. The problem? Only one month in existence means, "only time will tell."

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above.