Bumper Jumping Tesla With ETFs

By , Paul Baiocchi,

The hottest ETF in 2013 is not DIA , the ETF tracking the Dow 30, which has been setting new highs just about every day. Nor is it SPY, the fund tracking the S&P 500, which just registered a new inflation adjusted all-time high.
No, the hottest ETF in 2013 is QCLN, The First Trust Nasdaq Clean Edge Green Energy ETF.
QCLN is a relative unknown in the ETF market, but that may be about to change. Currently just $30 million is invested in QCLN, and most days only $150,000 worth of its shares changes hands. In fact, it’s not even a particularly well-designed or well-run fund. It cots 60 basis points a year, or $60 for each $10,000 invested, to hold just 37 U.S.-listed clean energy firms.
Although it is allowed to hold foreign-domiciled clean energy firms with shares listed in the U.S., 97 percent of the portfolio is in U.S. companies. While the fund has a very narrow global reach, it has a very large position in Tesla motors, perhaps the biggest darling of the 2013 stock market. The shares have shot up 145 percent so far this year.
The electric vehicle maker, which recently beat analyst earnings estimates, is outpacing Mercedes and BMW in sales for its Model S so far this quarter, and its Model S is now ranked as the top-scoring car, according to Consumer Reports. With a 13.4 percent weighting in QCLN, the company is having an outsized impact on the performance of QCLN.
Thanks to the massive run-up in Tesla shares, QCLN is now nipping at the heels of the db X-trackers MSCI Japan Hedged Equity ETF (DBJP) for the title of best-performing U.S.-listed ETF this year. Unlike DBJP, however, QCLN is not a bet on some monetary chicanery.
QCLN tracks cap-weighted index companies engaged in manufacturing, development, distribution and installation of emerging clean-energy technologies including, but not limited to, solar photovoltaic cells, biofuels and advanced batteries. Sure the success of Tesla has been abetted by a nifty $7,500 tax credit for buyers of its Model S, but the fund targets a more durable economic trend.
Whereas the monetary spigots that are fueling the long Japanese equities/short yen trade can be turned off at a moment’s notice, the economic and legislative support for alternative energy consumption is quite likely here to stay. Given the way concerns over fossil fuel dependence have infiltrated the national consciousness, it’s hard to see the clean technology trade going away. Companies like Tesla certainly don’t grow on trees, but the broad appeal of their products speaks to the various ways new technologies are finding their way into our daily lives.
It would be easy to see the near-150 percent rise in Tesla this year and conclude that the money has already been made in QCLN. But that would largely be missing the larger point that investors seeking to invest in the various tentacles of the clean-energy octopus—all without a Ph.D. in geology or physics—are the very type of investors who should use ETFs to get that exposure. After all, if you don’t have the requisite expertise to predict which types of technology are likely to gain traction, a diversified basket of firms designed and built by an expert in the space is the perfect vehicle for you.
QCLN is not without warts. The fund is fairly expensive, is hard to trade and holds of basket of just 37 firms, many of which you have probably never heard of. Those 37 firms have an average market value of just $3 billion, so investors are assuming a massive amount of mid, small- and micro-cap risk in choosing QCLN.
Still, if you’re looking for a way to play Tesla and the other firms trying to ride its coattails, QCLN is making quite a compelling case for itself.