So what is going on in the clean energy market you wonder? Well one way to track the performance and the sentiment is to look at the clean energy ETF’s. For those of you lacking the jargon, ETF stands for exchange traded funds, which is really a bundle of investments in stocks/bonds/etc. that has a particular defined investment character and differs in some ways from a mutual fund. Usually it is less or not at all actively managed, and the fees are generally lower. In the case of clean energy, they can be broken down into a few major categories: Broad Clean Energy ETS’s, Wind Power, Solar Power, and Nuclear Power, and others too unique to mention, such as the clean transportation ETF for example. The one we are focusing on here blends its energy modalities and is considered a Broad Clean energy ETF. Later we will look at some others.
The Wilderhill Clean Energy Index is just an index, one of the earliest, going by the call letters ECO (cute). Its ETF equivalent is PowerShares WilderHill Clean Energy Portfolio that goes by the call letters PBW. According to the Wildershares website, “We apply qualitative analysis at the Quarterly rebalancing to determine Index securities, sectors and weightings. Criteria include importance of the stock and sector to clean energy, relevance to climate change, pollution prevention, technological significance, intellectual property rights, salience to preserving biodiversity or ecological integrity or other non-financial criteria.” The website continues, “We weight the Index sectors according to importance and technological relevance, not views about individual stocks…our emphasis is on new solutions that make ecological and economic sense.” Blah, blah, blah, despite all egghead technicalities mixed with idealism, the WilderHill Clean Energy Index can provide a window into the movement and market sentiment behind clean energy.
Robert Wilder first developed his index as a test of the indexibility of clean energy in the late 1990’s starting out with an index based on hydrogen technologies. Well you know what they say about hydrogen: “It has a great future and always will.” And since I remember the discussions about hydrogen in college which was a couple years ago or more, much more, well that proverb seems to have some validity. The focus was considerably broadened to include wind and solar, not only manufacturers but also utilities that have strengths in clean energy and other entities in the energy technology, production, and distribution pipeline. As the cost of drilling ever deeper for increasingly sour crude rises, the costs for harvesting clean energies and improving efficiency falls with the cost of technology. By sector PBW is invested almost half into technology, one fourth in industrials, and less than 10% each in basic materials, consumer cyclical, and utilities.
The fund began February 2005 and 90% of the funds resources are invested in common stocks. The results over the full term are discouraging, with the fund down 7.5% since inception, but get this, in the optimism of 2007 it was up 58.35% then in the despair of 2008 it was down 70.04%, yipes! Then in 2009 it bounced back 28.94%, and in 2010 it was down again 5.25%. Now that we are seeing regular gas locally reaching for $4 a gallon we may also see an uptick in the value of the underlying securities and thus an increase in the ETF PBW itself like we did a few years ago. Some previously marginal projects will get funded, creating increased demand along the technology pipeline. In the first quarter this year PBW was up 3.2% but if rising gas prices stall the larger economy well, you know. Hold on folks, it looks like a wild ride!