Alternative Fuel Stocks

• Alternative fuel stocks include battery, biofuel/biomass, ethanol, flywheel, fuel cells, geothermal power, hydroelectric, hydrogen, natural gas, nuclear power, ocean power, solar, synthetic fuels, waste-to-energy and wind. Winners and losers in this group come and go regularly with changing investor sentiment about a particular group and its stocks' technical position.
  
  

Stock Advantage

• The advantage of investing in specific alternative energy stocks is a very high upside potential if you buy the right stock at the right time, but it comes with substantial risk if you buy an extended, hyped stock right before it falls. The alternative energy stock landscape is littered with former "hot" high-flyers that are now selling for pennies.
  
  

Alternative Energy ETFs

• Alternative energy exchange-traded funds (ETFs) are the best indication of the performance of alternative fuel stocks as a group because they are unmanaged and simply reflect current market trends by holding a basket of alternative energy stocks. New alternative energy ETFs may be periodically introduced but the more established ones that can serve as a bellwether or core holding are iShares S&P Global Clean Index Energy (ICLN), Market Vectors Global Alternative Energy (GEX), PowerShares Cleantech (PZD), PowerShares Global Clean Energy (PBD) and PowerShares WilderHill Clean Energy (PBW).
  
  

Mutual Funds

• The best way to research alternative energy mutual funds is to ask your broker for an updated list, as new funds may be introduced periodically, but some of the established ones include Calvert Global Alternative Energy (CGACX, CGAEX), FirstHand Alternative Energy (ALTEX), Guinness Atkinson Alternative Energy (GAAEX) and Leuthold Global Clean Technology Retail (LGCTX).
  
  

Fund Advantage

• In addition to broad diversification that reduces risk, many alternative energy ETFs and mutual funds invest globally and hold stocks that are not available to U.S. investors. To identify the best current performers, create a current list of alternative energy funds and periodically check their most recent return against the performance of the general market. It only makes sense to buy alternative energy funds if/when they begin to outperform general market indexes such as the S&P 500 or Nasdaq.