Moira O'Neill, personal finance editor at Investors Chronicle replies:
There is plenty of choice among funds that have a heavy energy weighting. However, as we pointed out in an article in January (http://www.investorschronicle.co.uk/InvestmentGuides/Funds/article/20090123/064488fe-e933-11dd-bc23-00144f2af8e8/Energise-your-portfolio.jsp), some energy funds shun oil and invest instead in renewable energy such as wind, solar and wave power. When oil prices rise, these are seen as more appealing from an economic, as well as ecological, perspective.
Recent years have seen both governments and companies begin to wake up to the threat presented by climate change. This is good news for the funds that offer exposure to environmental technologies. These funds back companies that are developing and operating technologies designed to combat global warming, and problems such as pollution and unsustainable development.
However, alternative energy is not for the faint-hearted. The sector is high risk, as much of the technology is at an early stage, with just a handful of quoted companies.
For investors interested in renewables, the Blackrock New Energy Investment Trust is one to look at for those who believe a wind of change is ready to sweep through the global energy sector, thanks to US President Obama's proposed focus on alternative energies.
Another option is Guinness Alternative Energy. It focuses on companies involved in the manufacture and development of energy generation from non-fossil fuel sources and those focused on energy efficiency, for example. One of the main themes in this fund is the solar energy sector, but areas like wind and hydroelectric power also feature in the portfolio.
The volatility and risks involved in pure energy or alternative funds make them more suitable for a small proportion of a well-diversified portfolio. If you do invest in alternative energy funds, you might hit the jackpot short term, but you should plan to invest for at least 10 to 15 years.
You could also use exchange-traded funds (ETFs) to get exposure to to the sector. Four ETFs offer an excellent broad exposure to alternative energy:
The DAXGlobal Alternative Energy Fund (ALTP) from ETF Securities aims to track the performance of around 15 alternative energy companies that have over 50 per cent of their revenues coming from natural gas, solar, wind, ethanol and geothermal/hybrids/batteries.
The iShares S&P Global Clean Energy fund (INRG) gives exposure to companies involved in clean energy products, and also in the manufacture of equipment and technology for the clean energy industry.
The ETFS WNA Global Nuclear Energy Fund (NUKP) gives a broad exposure to the nuclear industry, while Lyxor ETF New Energy (LNEW), which was listed just under a year ago, gives global exposure to the alternative energy sector by tracking the World Alternative Energy Index of 20 stocks calculated by Dow Jones.
All do pretty much the same regarding exposure to this sector, so really it must be down to personal preference.
You could either commit money across a number of these funds and thus spread risk away from just one ETF provider, or, if you would prefer to invest in an ETF run by a company with a long pedigree in ETFs, then the iShares product might be best.
The iShares S&P Global Clean Energy Fund is not such a 'pure play' on the sector as ALTP, but should still give adequate exposure.
iShares Global Clean Energy offers exposure to shares of around 30 of the world's largest publicly traded companies involved in clean energy production or the manufacture of equipment and technology for the clean energy industry. The diversification into a greater number of holdings makes it lower risk than ALTP. The fund's total expense ratio is an inexpensive 0.65 per cent.
