Whether it’s from limiting deductions or raising rates, most seem to agree the U.S. Treasury will collect more taxes from all of us starting in 2013.  Therefore, the general approach many taxpayers are taking in 2012 is to accelerate income and defer expenses.

With this in mind, here are 7 strategies to consider in 2012:

1.  Harvest gains, not losses, in 2012.  Normally the reverse holds true as taxpayers want to recognize tax losses now and defer gains in the future.  However, long-term capital gains for most taxpayers are set to increase from 15% to 20% next year.  Further, higher income taxpayers (single filers with more than $200,000 in income, joint filers with $250,000 in income) may also be affected by the 3.8% Medicare surtax thus taking their effective rate to 23.8%.  Therefore, some taxpayers may benefit from deliberately selling appreciated investments and paying tax on gains at a lower rate.

Tip: Remember the wash sale rule (where you have to wait 30 days before repurchasing a stock to recognize a tax loss) doesn’t apply when you’re harvesting gains.

Tip:  Don’t forget about capital gains distributions you will receive from mutual funds.  While many of these distributions are often made in late December, most funds publish estimates on their websites.

2.  Accelerate medical expenses (if you’re under 65).  While for some it may make sense to defer medical expenses to 2013 (especially larger expenses), others may benefit from taking them instead in 2012.  This is because the threshold for those under 65 (those over 65 can use the 7.5% threshold through 2016) increases from 7.5% of adjusted gross income to 10% next year.

Tip:  Medical expenses can include discretionary expenses such as prescriptions and many elective medical and dental procedures not covered by insurance.

3.  Prepay 2013 tuition for higher education.  Qualified taxpayers can benefit from the American Opportunity Credit of up to $2,500 per eligible student.  Even though this benefit is set to expire in 2013, payments made before year end still qualify.

4.  Exercise stock options or sell restricted stock.  Income derived from these two items may be taxed at a higher rate next year.  The new 3.8% investment income tax and .9% Medicare tax will also figure into the mix.  This is a complex area, however it may make sense to deliberately accelerate taxes this year; proceed only after seeking expert help.

5.  Pay yourself a 2012 dividend.  As the tax rate on dividends is currently set to increase for 2013, public companies such as Costco, Expedia and others have declared special dividends before year-end.  Likewise any taxpayer with a closely held C corporation could employ a similar strategy.

6.  Buy equipment for your business in 2012.  “Bonus” and “Section 179″ depreciation deduction limits are set to significantly decrease in 2013.  Therefore, if you purchase a depreciable asset in 2012, you may also be able to recognize a larger expense in 2012.

7.  Roth IRA conversion.  You may avoid higher rates in 2013 as well as possible Medicare surtax issues (while the surtax from a Roth conversion doesn’t apply, a conversion in 2013 could push a taxpayer’s adjusted gross income above the applicable threshold) by converting a regular IRA to a Roth IRA.

Tip:  Want to hedge against uncertainty?  One neat benefit to 2012 Roth IRA conversions is they can even be “unconverted”, partially or wholly, after year end up until October 15, 2013.  For additional discussion about the pros and cons of Roth IRA conversions, please click here.

‘Environmental sustainability is rapidly becoming an integral part of everyday business. As this issue becomes mainstream, momentum is gaining in the implementation of concrete actions, such as corporate environmental policies and their underlying processes; sustainability related disclosure and ‘green’ financial products, which contribute to addressing these pressing environmental matters. But sound corporate environmental policies and strategies cannot in themselves guarantee sound environmental performance without the necessary buy-in from staff. Ultimately, employee support can be a key driver of sustainability within the business, as they are responsible for the organisation’s processes and operations and are, therefore, crucial players in greening such processes and in transforming corporate culture.  And research suggests that a more engaged workforce has a positive impact on levels of employee motivation, loyalty and overall job satisfaction.’

Click here to read more from this report

You only need to look at some of the key areas we are currently facing to get a sense of where problems will surely lie in the future.  The dependence of the US on foreign oil imports, spiraling agricultural prices, rare earth element shortages, green and clean technology development, water security and shortages are only a few examples.  Add in the effects of climate change to businesses world wide and you start to see how vital it is to have an understanding of where we may be heading.

So much so in fact that the world’s largest banks and investment houses are now becoming big players.  Just take a look at the back page of this report to see the names of the firms involved in pushing this research forward.  Lots of household names that make up over $15 trillion in assets combined.  To put that in perspective that is the equivalent of the total amount of assets held by you and I in all retirement accounts in the United States.  Everything from 401(k)’s, 403(b)’s, IRA’s, defined benefit plans and annuities.

This report highlights some of the risks and opportunities associated with a new environmental economy and provides context on the challenges and solutions that need to be addressed.  Click on the image above or here to read more.

This new windfarm, the world’s largest offshore operation, consists of 100 turbines and will produce enough energy to supply heat and light for 200,000 homes.  In recent years, the UK has followed a path  similar to the US in slowly revolutionizing their aging power infrastructure and sources.  This has put the UK on the back foot in comparison to much more progressive continental European counterparts when it comes to alternative fuel development (one exception, however, is the cutting-edge research the UK is performing, particularly in tidal and wave power solutions).

Now, it seems that traditional path is  significantly changing in the UK.  Even before this installation, the national grid put out a statement that 10% of the UK’s electricity came from wind during a recent 24hr period, and an additional 4% from hydroelectric power.  With  UK windfarm yields being among the highest in Europe,  leveraging the best power producing sources to fuel the national grid is starting to show results.

Reading this article further resulted in contemplation of the future of wind installations in the context of the massive slowdown we have seen in the last couple of years, after a decade of continued growth globally.  In the US alone, 2nd quarter installations were down 71% from just a year prior, and it’s set to get worse with 2010 year predictions set to be about half that of 2009 levels.  Much is attributable to the global recession. One only needs to look at Spain, 3rd in global installations and a driving force in wind power development, suffering greatly under the burden of the economic pressures it has faced in recent times.

That’s not the complete story in the US, however.  Many wind companies were banking on the development of a renewable energy standard (RES) to move things forward,  but the delay of this legislation has removed a significant boost to the renewable energy industry that many put as far more significant than the economic problems of funding such projects.    In fact, supporting the RES is critical for future economic growth by creating hundreds of thousands of American jobs, reducing carbon emissions and moving away from a nation dependent on foreign oil.  Add to this the fact that much of rural America is considered prime real estate for consistent and reliable wind generation. The hope is that things will be brought back on track soon to contribute to both a new energy future and a stronger economy.

It starts with a 100-year perspective. Unlike most American homes that are designed to last only decades, every aspect of this house is built to 100-year standards.

Built through a partnership between Boulder-based Vireo LLC and WeberHaus GmbH & Co. KG, this home was manufactured in Germany to precise tolerances (1/2 inch over a 100-foot span) and then shipped to the U.S. Once it arrived on site, assembly took a matter of days as there was no additional fabrication required.

See video below for a time lapse:

http://www.youtube.com/watch?v=wFwn4vhPhAo

One of the less obvious benefits of such a short on site build time is cost overruns on typical construction projects due to weather, coordinating large numbers of contractors, and delivery delays in supplies and materials are practically eliminated. Further, construction site waste is cut from an average of 17% to a claimed 2%.

As you might imagine, it has an array of solar photo-voltaic panels, a gray water recycling system and ultra efficient lighting and appliances. It’s also pressure tested to 3 atmospheres so the only air exchange (through an ultra-efficient heat exchanger) is for freshness. As such, it only requires about 18% of the energy of the average home.

To learn more about this unique home, visit the 2002 Alpine website for more information.

Many thanks to David Scott of Colorado Landmark Realtors.

Roth Conversions in summary

For a primer on Roth IRAs, please click here.

The law currently allows for IRA owners to “convert” up to 100% of their existing tax-deferred accounts (traditional IRAs, rollover IRAs, SEP IRAs, SIMPLE IRAs, etc.) into a tax-free account, also known as a Roth IRA.  Once a regular IRA is converted to a Roth IRA, no taxes will ever be owed on any future investment earnings or distributions.  However, every dollar that is converted will be taxed at today’s ordinary income tax rates.

Anyone with an IRA is eligible for the conversion as there are no restrictions on age, income or marital status.  Conversions are irrevocable, except as noted later in this article.

What’s unique about 2010?

2010 has generated Roth conversion fever for two reasons:

1. Prior to 2010 there was an income restriction where if you had more than $100K in modified adjusted gross income (MAGI), you were ineligible for a Roth conversion.  This restriction has been lifted for 2010 (and future years) and therefore there is a large group of more affluent investors who were previously ineligible to convert.
2. If you convert your IRA to a Roth IRA in 2010, you can split the taxes owed in 2011 and 2012 as opposed to having to pay them all at once.  If you convert in future years, all the taxes are owed by the filing deadline in the following year.

Arguments for conversion:

1. Tax rates are at historical lows

2010 in particular is likely to be one of the last low tax years for the foreseeable future.  Therefore 2010 may be the last chance to convert at these more favorable rates.

2. Spread payment of taxes over two years (if converting in 2010)

You can liken this to an interest free loan from the government.  Rather than pay all the taxes associated with a 2010 conversion by April 15, 2011, you can split the taxes owed between 2011 and 2012.

3. Roth IRAs have no RMDs

Once an IRA investor turns 70.5, he or she must begin to take withdrawals from his or her IRA.  The amount that must be withdrawn is a percentage of the IRA based upon life expectancy tables and this percentage increases every year.

Investors who do not need the money and would rather leave their IRAs to their heirs, a Roth IRA can be a great way to accumulate income tax free.   It is worth noting however that non-spouse beneficiaries who receive a Roth IRA are subject to mandatory distributions.

4. Shift your wealth into a more protected environment

When you convert an IRA to a Roth IRA, taxes will be owed.  Normally it’s most prudent to pay these taxes from non-qualified (non-IRA funds).

For example, an investor has $1 Million in IRAs and $350K in non-IRAs.  If he were to convert his entire $1Million in IRAs to a Roth IRA, he would likely face a tax bill of approximately $350K (although the exact amount owed would depend on his state of residency and other factors).  Therefore post conversion, he would be left with just $1Million in a Roth IRA.

This technique may provide more asset protection by offering greater shelter for the investor’s entire portfolio.  However this argument should be examined carefully with the aid of a competent lawyer as laws will vary from state to state and limits may apply.  Furthermore, as an alternative, an investor, if eligible, may gain greater overall protection by rolling his IRA into a 401(k).

Another item to carefully consider is whether the investor is ever likely to make investments that generate unrelated business taxable income (UBTI) as this type of income may cause the equivalent of double taxation within the IRA. Therefore these types of investments should normally be reserved for investments held outside of any kind of retirement account.

5. Reduce the size of your estate and therefore potentially reduce estate taxes

This benefit applies to more affluent IRA investors although it’s a hard one to nail down at the same time.  2010 currently has no federal estate tax, however most agree it will return in some form in 2011 and beyond.  In fact under current law, in 2011 the amount above which estate taxes are owed (at rates up to 50%) is $1Million.

Therefore a Roth IRA conversion may make sense to lower the overall value of an otherwise taxable estate.

6. Roth IRAs are tax-free

Many investors have seen the value of their IRAs decline since 2008 and although the markets have partially recovered, now may be a particularly good time if you feel your IRA is at a relative low point in terms of value.

This is because you pay income tax on the value of the IRA at the time of conversion.  Therefore if you convert an IRA worth $1 Million in 2010 and it increases to $1.2 Million by the end of the year, you will still only owe taxes on $1 Million.

7. Great tool for deliberately generating taxable income

At Caledonia we had a client who had very little taxable income due to unemployment.  Further, with very little taxable income, he had deductions and credits that would have otherwise gone unused.  By executing a Roth conversion, he was able to convert a significant amount of his rollover IRA while paying almost no income tax in the process.

Another example of when this technique can be appropriately used is when an elderly investor is facing large medical expenses.  Without the significant taxable income that a Roth IRA conversion can generate, large deductions again could be wasted.

8. Beneficiaries are in a high (or higher) income tax bracket

Consider the case where an elderly IRA investor has particularly affluent children he has named as beneficiaries.  It may make sense for him to do a conversion and pay taxes at his lower rate and pass on a Roth IRA to his kids as opposed to leaving the IRAs where the kids will pay tax on IRA distributions at their marginal income tax rates.

9. You have non-deductible IRAs

Non-deductible IRAs are IRAs where there are after-tax contributions.  If they are substantial, this may make sense as there is no income tax to pay on after-tax amounts that are converted to a Roth IRA.  Therefore you are left with the benefit of having converted a tax-deferred account into a tax-free account at no cost.

The potential fly in the ointment with this strategy is that you cannot select to only convert your after-tax contributions.  Instead there is a pro-rata rule that applies.  For example, if you have an IRA worth $100K with a $50K basis (after-tax contributions) and you wish to convert $50K, you will have to pay income tax on $25K or 50% of the converted amount.

Arguments against conversion:

1. Do you really want to stick your head inside the lion’s mouth?

Roth IRAs are supposed to be tax-free.  This means all earnings and any subsequent distributions should be free from income taxes.

However, currently there are trillions of dollars invested in IRAs in America.  What is the likelihood that if a similarly large amount ultimately winds up in Roth IRAs the government will stand by its promise of keeping Roth IRAs tax-free?  Do you really want to take the bet Congress will overlook “millionaires” in the future that aren’t paying any taxes?  Congress didn’t back in the ‘70s and enacted some nasty legislation that lives on today in the form of alternative minimum tax (AMT.).

And it may not just be millionaires that may be ultimately at risk.  Social Security benefits were supposed to be tax-free; at least they were up until 1984 when Congress amended the Social Security Act.  Now up to 85% of a recipient’s benefit amount can be subject to income taxes.

2. Where’s the fire?

Although converting in 2010 may be tempting for some, it’s also worth remembering that one can convert in future years too.  Doing so preserves the ability to do tax-planning year to year, particularly when doing annual partial conversions (discussed below).

3. Conversions are irrevocable

Aside from the limited ability to unconvert (see discussion below), Roth IRA conversions are irrevocable.

4. Ruining a powerful tax opportunity if leaving money to charity

Although you cannot contribute your IRA to a charity while living, you can leave it to charity when you die.  Therefore if you have this intention, a Roth IRA conversion may be disastrous from a tax standpoint.  Since charities have tax-exempt status, there is no reason trigger income tax through a Roth conversion if the money is going to charity anyway.

5. Need the money in five years?

A Roth conversion probably doesn’t make sense in the short-term if you’ll need the money anyway.

6. You will be in a lower tax bracket in the future

This might apply if you’re a baby boomer on the verge of retirement.  Therefore why pay tax at a potentially higher rate now?

7. You don’t have the money to pay the taxes

This is a particular concern for someone under age 59.5.  If you don’t have a separate source of funds and instead make a withdrawal from your IRA to pay for the taxes owed, you’ll be hit with an additional 10% penalty on the withdrawal amount itself.

8. Conversion pushes you into a higher tax bracket

This is a concern because not only are you paying more taxes at the marginal rate, your effective tax rate may also increase due to phaseouts and high thresholds on certain deductions.

Partial Conversions:

Many investors find reasons for and against doing a Roth IRA conversion.  Therefore one approach is to hedge your bet or only partially convert your IRA.  By only converting a portion of your IRA into a Roth IRA, you may benefit from tax diversification if you wish to keep a portion of your portfolio in tax-deferred IRAs.  Alternatively executing partial conversions on an annual basis allow you to control how much income tax you pay from year to year.

Unconversions – for those with buyer’s remorse?

Interestingly, although the deadline for conversion is year end for any particular tax year, you may “unconvert” your conversion, partially or wholly, up until your tax filing deadline plus extensions the following year.

This may be particularly useful if you have underestimated your income and wish you hadn’t converted so much of your IRA.

Tricks:

1. Although the income limitation on Roth conversions has been lifted, there is still an income limitation of $167K (for married filing jointly taxpayers) where your ability to contribute is phased out.  However you can always make a non-deductible contribution to a traditional IRA without regard to income.  Therefore, if you fall into this higher income category, you can make your non-deductible contribution and then immediately convert it to a Roth IRA.  Further you can repeat this strategy every year.  The only important trap to watch out for is the pro-rata rule with respect to non-deductible IRAs (discussed above).
2. Although the deadline for conversion is always year end for any particular tax year, you can unconvert your conversion, partially or wholly, up until your tax filing deadline plus extensions the following year.  This has lead some investors to consider trying to arbitrage their conversion by deciding whether the performance of their investments indicates they should unconvert.  For example, say you have a $1 Million IRA that you convert to a Roth IRA.  You then invest it aggressively and lose 40%.  Provided you are still inside the deadline for unconverting, you could unconvert, and avoid paying income tax on $1 Million.  You could even convert your IRA to a Roth again and this time only pay taxes on $600K.

Traps:

1. If you are subject to a required minimum distribution (RMD), make sure you take it from your IRA before you execute a total Roth conversion.  This is very important because a Roth IRA conversion will not satisfy your annual RMD.
2. Make sure you have separate funds to pay your tax bill if you’re under 59.5.  If you intend to make a withdrawal from your IRA to pay for the extra taxes and you are under 59.5, you’ll be hit with an extra 10% penalty.  And if you don’t have the funds to pay for the 10% penalty, you’ll wind up taking even more from your IRA thus making a bad situation even worse.

Important Dates:

• 12/31/10 – This is the deadline by which you must convert if you wish for your Roth IRA conversion to be effective in tax year 2010.
• 4/15/11 – This is deadline date that 50% of taxes owed due to 2010 conversion are due the IRS.
• 10/15/11 – This is the final date (individual tax filing date plus extensions) by which a conversion for 2010 can be unconverted either partially or wholly.
• 4/15/12 – This is the date by which the other half of taxes are owed for a 2010 conversion.

Summary

Although the financial services industry is marketing the Roth IRA conversion in a push for new business, at Caledonia our general view is that conversions, especially 100% conversions, should be approached cautiously.  Every situation is unique and even in cases where the arguments appear compelling, make sure you are working with an experienced advisor or CPA who can offer you a thorough and balanced analysis.

A significant difference from the tech decade, however, is that while many of those start-ups were founded on ground breaking technologies, there is more stability within the world of alternative energy.  For one, it is not just start-ups that are pushing the advancement forward.  Large and established companies that have worked in the power industry for decades are recognizing the need to diversify their operations to keep up with the inevitable switch to more sustainable fuel and energy sources. A good example of this has been in the Natural Gas industry.  No matter what your opinion on the fuel as a possible intermediate, cheaper, lower emission substitute (see earlier post), the recent acquisition of a number of natural gas producers by giant oil companies has clearly shown they will not allow the investment opportunity to pass and at worst will make a very safe hedge to their existing operations.  Other firms focused on infrastructure and power delivery see opportunity in improving efficiencies within the distribution markets, not only at the corporate level, but within households and through smart grid system technology.

With so many different ways (and different scales) to invest, it only makes sense that  investment vehicles are growing in number to support the demand and variety of nuances within the marketplace.

Outlined below is a summary of the current key funds in the ETF world and the areas they focus on.

Broad Based Clean Energy Sector ETFs

These funds provide broad based exposure to a wide range of renewable sources.  Many are global in nature providing international exposure as well as diversifying between the various types of power sources.  With the US still to determine the exact scale and direction it will take in pursuing alternative energy, having assets backed by international countries that have already pledged support to comprehensive energy changes is very significant.

PowerShares WilderHill Clean Energy Portfolio (PBW): PBW tracks the WilderHill Clean Energy Index, a benchmark that tracks companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy. It holds 53 securities and is heavily exposed to companies in the electrical equipment sector.

Market Vectors Global Alternative Energy ETF (GEX): This ETF holds 30 securities and is heavily exposed to firms in the U.S., which make up 44% of the fund’s total assets. GEX is diversified among a variety of alternative power sources; its top holdings are Westas Wind Systems (9.5%) and solar giant First Solar (6.7%).

PowerShares Global Clean Energy Portfolio (PBD): PBD consists of 88 securities and has nearly one-third of its exposure to U.S. firms, the largest single country allocation. Additionally, the fund is heavy on mid and small cap securities; just 14% of the assets are classified as large cap firms.

PowerShares Cleantech Portfolio (PZD): PZD consists of 78 firms which focus on knowledge-based products or services that improve operation, performance, productivity, or efficiency, while reducing costs, inputs, energy consumption, waste, or pollution. PZD’s top holding is Schneider Electric (2.8%).

iShares S&P Global Clean Energy Index Fund (ICLN): This iShares fund allocates its holdings to a wide variety of alternative energy sources. Besides solar and wind, the fund also invests in firms that produce biomass and ethanol and geothermal producers. The top sector is electrical equipment, which makes up about 53% of assets. Independent power producers make up nearly 25% of holdings.

Wind Power ETFs 

Wind power is going from strength to strength across the world.  In the US alone, Texas broke a record in March earlier this year when wind energy supplied 19% of the total grid energy to the state.  Granted, this was a one time event, but it does show how significant a contributor this form of energy production can be in the future.  On a global level, power generated from wind grew by more than 31% in 2009 alone, while China more than doubled its wind power output in the year.

First Trust ISE Global Wind Energy ETF (FAN): FAN offers investors global exposure to the wind industry, allocating 26.2% of its assets to Spanish equities, 16.3% to the U.S. and 14.9% to Germany.

PowerShares Global Wind Energy Portfolio (PWND): This ETF also offers investors global exposure, and is diversified across market capitalization levels with nearly equal allocations to large, mid, and small cap securities.

Nuclear Power ETFs

Nuclear power has become a  debate that splits environmentalist opinion as much as it does members of the general population.  Security fears, as well as catastrophic disasters such as Chernobyl have made this a political battleground regardless of the energy issues it presents.  For countries that have already implemented nuclear power on a large scale, they have benefited a great deal from proven clean energy that can supply almost all of its energy requirements.  France is often heralded as the prime example in this case as it generates almost 80% of its electricity in this way.

iShares S&P Global Nuclear Energy Index Fund (NUCL): NUCL holds 24 securities, maintaining heavy exposure to the electric utilities sector (50.9% of the total assets). Besides the U.S., which makes up 32% of the fund, NUCL offers global exposure by investing 14.6% in Japan, 13.2% in Canada, and 10.1% in France.

iShares S&P Global Nuclear Energy Index Fund (NLR): This fund is well diversified among market capitalization levels with roughly an equal amount in each of large, medium and small cap securities. While other funds in this segment focus on power generation, this fund allocates 36.6% to uranium mining and 4.5% to uranium storage, offering investors exposure to a seldom-tapped segment of the industry.

PowerShares Global Nuclear Portfolio (PKN): This ETF tracks the WNA Nuclear Energy Index, which follows globally-traded companies engaged in the nuclear energy industry. The benchmark represents reactors, utilities, construction, technology, equipment, service providers and fuels. It is heavily focused on large cap firms, which make up roughly two-thirds of the fund’s total assets.

Solar Power ETFs 

Solar PV production costs continue to drop dramatically and many producers are optimistic that price parity may be approaching faster than expected.  The advent of new thin film technologies as well as other game changing technological advances positions solar well in the alternative energy race.  Outside of the technology, there are problems to be resolved at governmental levels where heavy subsidies and changes to tax laws have added significant and unexpected pressures.  The once thriving solar industry in Spain is suffering considerable losses in this regard, and even the global leader, Germany is facing tough policy changes that will impact the industry.

Market Vectors Solar Energy ETF (KWT): This ETF focuses on mid cap securities, which make up more than half of the fund’s total assets. KWT’s top holdings are Renewable Energy Corp. and MEMC Electronic Materials, which combine to make up 22.6% of the fund’s total assets.

Claymore/MAC Global Solar Energy Index ETF (TAN): TAN offers investors a greater level of exposure to small cap securities by investing slightly more than two-thirds of its total assets in small cap firms. Its largest holding is First Solar, which makes up 10% of the fund’s total assets.

Miscellaneous Clean Energy ETFs

These ETFs focus on a specific clean energy niche, and as such do not belong in any of the other categories. The majority of these funds focus on a specific fuel source (such as biomass), or seek to benefit from a greener lifestyle through more progressive transportation or carbon trading programs. These are some of the most targeted ETFs on the market today, and many have relatively low trading volumes.

PowerShares WilderHill Progressive Energy Portfolio (PUW): This ETF takes a unique approach to alternative energy investing by focusing on U.S.-listed companies that are engaged in transitional energy bridge technologies, with an emphasis on improving the use of fossil fuels. PUW offers exposure to sectors that many other clean energy ETFs do not touch, such as auto components (7.8%), chemicals (7.8%), and oil, gas and consumable fuels (17.9%).

PowerShares Global Progressive Transportation Portfolio (PTRP): PTRP focuses on companies that develop and produce cleaner and more efficient means of transportation. This ETF has a heavy focus on industrials (57.7%) with a large allocation to consumer discretionary firms as well (19.3%). Its top holdings include Clean Energy Fuels Corp., which provides natural gas for vehicle use, and Piaggio & C.S.p.A., which is an Italian company focusing on the production of scooters and motorcycles.

iPath Global Carbon ETN (GRN)- This ETN tracks the Barclays Capital Global Carbon Index Total Return which is designed to measure the performance of the most liquid carbon-related credit plans and is designed to be an industry benchmark for carbon investors. The index currently includes two carbon-related credit plans: European Union Emission Trading Scheme or EU ETS Phase II and Kyoto Protocol’s Clean Development Mechanism.

Elements CS Global Warming ETN (GWO): This fund tracks an equally weighted index that consists of 50 companies that have a focus on products that minimize global warming. The fund charges an expense ratio of 0.75% and is up 52% over the past 52 weeks.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN): QCLN invests in firms that are engaged in the manufacturing, development and distribution of emerging clean-energy technologies such as solar, photovoltaics and advanced battery technologies. Its top holdings include Cree (8.4%), a leading maker of LED technology.

Disclosure – Caledonia Wealth Management, Ltd. invests in numerous ETF’s centered on the alternative energy sector including some of those listed above.
Thanks goes to Eric Dutram and ETFdb for content help.

Brazil has the largest economy in South America and ranks as the world’s fifth most populous country and tenth largest economy.  It is uniquely situated in that it shares borders with every country in South America with the exception of Chile and Ecuador.  The country has rebounded strongly since the economic problems of 2007,  driven by domestic demand as rising incomes create a growing, increasingly consumer-oriented middle class .  Brazil is also seeing greater freedom in its export policy, which has led to strong ties with China.  In fact, China surpassed the US in 2009 as the largest trading partner.  While many assume that trade must be one of the biggest drivers of the economy, it actually only represents a small part of Brazil’s GDP and these exports are further diversified geographically with a low dependence on external financing and reserve accumulation.  Incredibly, this has led to Brazil’s international reserves being able to cover the country’s sovereign and private external debt obligations. 

With a growing consumer market that has been supported by government aid, there has been a significant upswing in merger and acquisition activity.  Sectors such as finance, consumer retail and agribusiness are seeing more takeovers, corporate restructuring and ventures.  These pressures are looking likely to result in an increase in rates to a predicted 9% no later than April, as there is some concern that inflation could be a significant risk.  Banks are also getting in on the action, greatly expanding their credit positions while opening hundreds of agencies across the country in 2010.

With a change in Presidency this year not looking to upset the apple cart in terms of economic direction, good things seem to occupy the horizon for a country that will have a chance to show off its growth, development and place in the global economic order in Rio at the 2012 Olympics.  There is also a wave of competent business expertise flowing through the corporate landscape in Brazil.  One example is Eike Batista, predicted to be the worlds richest man in a couple of years due to the enormous wealth he has built in Brazil and beyond.  For a very engaging interview with Batista, watch the Charlie Rose Show online and find the video in the archives on 02/08/2010.

The simplest way to invest and get exposure to the Brazilian markets beyond individual stock selection is through the ETF’s iShares MSCI Brazil Index (EWZ), Market Vectors Brazil Small-Cap (BRF) and a currency option is Wisdom Tree Brazilian Real (BZF).

Click on the above links for more details on these funds, and check back for another post that will profile them in more detail.  Part 2 of this series will take a look at Chile and why it may follow in Brazil’s success as a strong emerging market.

SeekIng Alpha (SA): In your portfolios currently, how are you allocating among different asset classes?

David McMillan (DM): At the beginning of 2009 our biggest concerns came from a number of directions. We wanted to ensure that if the declines of the previous year continued we would be protected on the downside from further drops in portfolio values. We also needed to ensure that if we saw a dramatic recovery we could participate and generate respectable returns. It was the classic problem of trying to have low risk with solid growth, and in one of the most challenging economic periods of our time. As active managers, it wasn’t enough for us to sit on the sidelines and hope that a recovery would erase some of the losses that 2008 delivered. This led to holding a diverse mix, heavily weighted in fixed income investing, including treasuries, inflation protected bonds, corporate bonds, international bond funds, high yield bonds, commodities, and limited number of domestic and international equities (particularly in the green and clean technology areas). This saw us outperform our market benchmarks with lower risk levels. We had seen numerous opportunities within the fixed income space, and they didn’t fail to deliver. Even the higher risk fixed income investments were more attractive than most equity positions from a risk-return standpoint.

Disclosure:  Caledonia and/or its principals currently hold(s) position(s) in TBT