The Easy Way to Invest in Alternative Energy

Financial markets from New York to Tokyo are finally showing renewed signs of life.

Better-than-expected earnings reports from US companies have helped restore confidence in the global economic recovery. And the appetite for risk is slowly returning, as evidenced by the Dow Jones Industrial Average recent rally to close above the 10,000 mark for the first time in a year.

Now, with the worst of the recession probably over, energy prices trending upward and President Barack Obama and other world leaders increasingly targeting global warming and energy security, it's time to start thinking about investing in clean energy again.

For investors ready to reenter the market but uncomfortable with sorting through the myriad of alternative energy companies and breaking down technical specifics, it's best to leave the stock picking to the professionals.

Long used by Wall Street traders and savvy investors, ETFs have become increasingly popular with average investors in recent years. Much like mutual funds, these funds allow investors to diversify their holdings and temper risk by investing in a basket of alternative energy companies through vehicles that can be traded easily at a very low cost.

While there are somewhere in the neighborhood of 50 industry mutual funds and exchange-traded funds (ETFs) covering cleantech and renewable energy, here are the easiest ways to tap the industry:

PowerShares WilderHill Clean Energy (NYSE: PBW):  up 27.6% year-to-date

• Composed of 52 companies involved in alternative energy production or technology, its managers believe they "stand to benefit substantially from a societal transition toward use of cleaner energy and conservation."
  

PowerShares Global Clean Energy (NYSE: PBD):  up 33.4% year-to-date

• An equally-weighted portfolio that is rebalanced and reconstituted quarterly, this fund "seeks to deliver capital appreciation and consists of companies that focus on greener and generally renewable sources of energy, and technologies facilitating cleaner energy."

First Trust NASDAQ Clean Edge Green Energy (Nasdaq: QCLN):  up 37% year-to-date

• This fund, which has a modified market cap-weighted index (meaning larger companies receive a larger Index weighting) is "designed to track the performance of clean energy companies that are publicly traded in the United States, and includes companies engaged in manufacturing, development, distribution and installation of emerging clean energy technologies, including, but not limited to, solar photovoltaics, biofuels and advanced batteries."

iShares S&P Global Clean Energy Index (NYSE: ICLN):  up 21.2% year-to-date

• Tracks about 30 companies engaged in "biofuel and biomass, ethanol and fuel alcohol, geothermal energy, hydroelectricity, solar and wind energy."