Your Guide to Investing in the Ethanol Industry

Ethanol is fast becoming one of the most popular alternative fuels on the market, and there is a growing number of companies that now produce ethanol fuels. As the government continues to promote the use of renewable energy sources, ethanol manufacturers are facing good prospects. And since the government itself provides incentives to companies and subsidies to farmers to support the production of alternative fuel, investing in ethanol companies are also becoming popular as a way to make guaranteed income.

Niche ETFs

ETFs or exchange traded funds have been increasingly targeting specific niches over the past few years. And given the post-crisis state of the economy, the ETFs that have experienced much growth are those that trade in commodities. Some of the most promising niche ETFs these days is the alternative energy exchange traded funds, thanks to the growing interest in the industry. In a nutshell, investing in the ethanol industry is basically investing in a product highly favored by the government, so you can expect at least a certain level of reward guarantee. Best of all, even automobile manufacturers such as General Motors, Ford, and Chrysler.

Aside from ethanol ETFs, there are also certain niche ETFs that also benefit from the growing importance of ethanol because they represent products that are used in the production of ethanol. These include FUE stocks, which are heavily focused on corn ETFs, soybean/soybean oil ETFs, and sugar ETFs.

Why Choose Ethanol ETF

Ethanol ETF is an exchange traded fund that specializes in ethanol. This type of ETF is currently at its peak as demand for ethanol rises and the price of ethanol also shoots higher. Also, the Energy Policy Act of 2005 has set 2012 as the target date for when all gasoline producers should be able to double their use of renewable fuels like ethanol. Thus, investors can expect a large growth in the ethanol industry in the near future. This means that now is a good time to invest in ethanol ETF.

An example would be PowerShares WilderHill Clean Energy (AMEX: PBW), which came out in March 2005 at $15. In May 2006, the value of a share rose to $24. Another example is Archer-Daniels-Midland (NYSE: PEIX), a huge agriculture company that makes 25% of its profits from ethanol and is funding a billion-worth ethanol and bio-fuel production in Europe. The company’s stock price tripled in just two years. One of the biggest players in the ethanol exchange traded fund, however, is the Pacific Ethanol (Nasdaq: PEIX), which currently sells their shares at $20 each.

Choosing Your Ethanol Exchange Traded Fund

Still, it is important to note that there are still some ethanol companies that are not turning a good profit, so ethanol investments still carry a certain level of risk with them. Thus, if you are interested in investing in an ethanol ETF, you should still have some criteria that will help you choose the right ethanol investments to make. The criteria should include income-expense ratio, index weighting, turnover, and liquidity of exchange traded options.