Make Money in Growing Environmental Stocks -- the Easy Way

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect companies addressing environmental needs to thrive as concerns grow about our planet's health, the Market Vectors Environmental Services ETF (NYS: EVX) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The environmental ETF's expense ratio -- its annual fee -- is a relatively low 0.55%. The fund is small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed relatively well, but it's also very young, with just a few years on the books. It underperformed the S&P 500, on average, over the past three years, but beat it over the past five. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 1%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do. And with just 20 holdings, it has concentrated its assets, too.

What's in it?
Several companies in environmental services had strong performances over the past year. Rentech (ASE: RTK) , for example, soared 45%, as investors like its diversification into both biofuels and fertilizers. Others, though, worry about its lack of profitability and fear that the biofuel business's viability isn't yet proven and is a drag on the fertilizers. Food recycler Darling International (NYS: DAR) gained 14%, much of that just recently, when it posted surprisingly good quarterly results that hint of an uptick in demand. It still faces the prospect of low finished-product prices, though, which could put pressure on earnings.

Other companies didn't do as well last year but could see their fortunes change in coming years. Veolia Environment (NYS: VE) , for instance, shrank by 51%. The company, which collects waste, treats water, and produces energy, should see its fortunes improve once our economy improves and municipalities are better able to spend on necessary water treatments. In the meantime, though, it carries a lot of debt and plans to raise money by selling off a lot of assets and reducing its dividend. That will leave it a leaner company. It's also exiting the waste collection business in the U.S. That will leave domestic garbage giant Waste Management (NYS: WM) , down 3%, smiling.

The big picture
Demand for environmental services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about the"5 ETFs That Could Soar in 2012." And if you're looking for some great investments beyond ETFs, consider these "12 Dividend Stocks for 2012."

At the time this article was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter here, owns shares of Veolia Environnement, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Darling International.Motley Fool newsletter serviceshave recommended buying shares of Waste Management and Veolia Environnement, as well as writing a covered strangle position in Waste Management. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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