First Trust Sees Which Way The Wind Blows

June 18, 2008

Firm launches market's first wind energy ETF.


There's a new wind blowing in the energy sector, and First Trust Advisors is looking to get in on the action: The firm launched the first wind energy exchange-traded fund on the NYSE Arca today. The First Trust ISE Global Wind Energy Index Fund will trade under the symbol FAN and charge a net expense ratio of 0.60%.

There's a wide variety of alternative energy and clean energy ETFs currently available, and two funds covering the solar energy market were launched by Van Eck and Claymore just a few weeks ago. A wind energy ETF is just another variation on this theme and possibly another way to glean some benefit from soaring oil prices. With oil well over $100 a barrel and global warming concerns growing, alternative energy sources are rising to the forefront and investors are certainly taking a greater interest in them lately.

Robert Carey, CFA, First Trust's chief investment officer, said the firm first started looking into wind energy more than a year ago.

"I think the escalation of energy prices and the talk of alternative energy has really made investing in this area more attractive," Carey said. "It's really a convergence of public policy and concerns about the environment—even some local and regional authorities are pushing hard for utilities to use more alternative energy and renewable energy sources."

Set for Growth

Wind energy seems to be an area ripe for growth. According to a report from the Global Wind Energy Council (GWEC), the total global installed capacity at the end of 2007 was roughly 94,000 megawatts, an increase of about 27% from 2006. The council projects that the global wind market will grow 155% by 2012 and account for 3% of global electricity production. GWEC says in the report that wind energy accounted for about 1% of global electricity production in 2007 (similar to solar energy).

Carey pinpointed Europe as the region standing at the vanguard of wind energy development and use, with a strong presence in the fund, and GWEC notes that wind energy accounted for 40% of new power installations in Europe in 2007. However, although seven of the top 10 countries in terms of installed capacity at the end of 2007 were in Europe, the top five included the U.S. (17.9%), India (8.4%) and China (6.3%) alongside Germany (23.4%) and Spain (16.1%). Carey said that the industry would likely see the U.S. and Asia ramping up activity even more in the future.

"[Global wind energy] capacity has been growing rapidly, almost 30% a year. It's been moving along fine, but I think with the high price of oil, natural gas prices being elevated and coal prices being higher, it kind of speeds up the economic inevitability that some of the energy we use—especially electricity—will come from alternative energy sources," Carey said. He noted that the solar energy industry and the wind energy industry have similar stories, with both seeing improving technology and falling costs.

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