Investment Opportunities

The Green Revolution has Spawned A Host of Investment Opportunities

The Green Revolution is here to stay.  Green companies are no longer a smattering of startups and struggling growth companies, suggesting high hopes and high risk, while showing very little revenue for their combined efforts.  The reality is that there were several Green companies that outperformed the S&P 500’s gain of 28.8% for 2009, and quite a few with significant multiples of that figure, many with material revenue streams and profit margins.  However, performance of late in 2010 has not been anything to write home about, as the industry takes a collective breath and waits for economic recovery to take hold on a global basis.

The S&P 500 Index has been stuck in a sideways trend for the majority of the last year, as has the behavior of oil prices.  Green sector stocks tend to correlate to these two indexes, outperforming in good times and underperforming in times like these.  The following chart illustrates this point:

One of the older Green ETFs is shown here, the PowerShares WilderHill Clean Energy Portfolio (PBW), and its performance for the past year is correlated with its “cousin” ETF for Oil.  The Clean Energy ETF underperformed as expected, but the correlation remained intact.  However, this chart does not mean that renewables are not a sector worthy of investment.  To the contrary, the upward trend since early June is indicative of potential future appreciation.

Renewable energy has come of age.  Projects are scaling up in every geographic region.  Large, medium and small businesses alike are benefiting from the transition away from fossil fuels.  As our dependence wanes, all utility programs across the globe will undergo major modifications, and the demand now being generated in developing countries of the world, especially China and India, will guarantee double-digit growth in the largest market in the world, the energy production market. 

There are winners and losers in the Green world of investment, but the more prudent approach for the average investor at this time is to concentrate on the many Green exchange-traded funds that have sprung up over the past decade.  Diversification is the best way to guard against risk, and these funds have been designed to provide that very benefit.  You can also mix and match shares from a variety of Green ETFs to create a customized portfolio of your own choosing. 

Results may also vary dramatically when comparing domestic-focused funds to those that invest internationally.  The United States is actually lagging behind countries like China and Germany in manufacturing equipment for solar energy, biofuels, fuel cells, water remediation and renewable power generation.  Currency trading effects are best mitigated by an ETF investment approach.

What are a few examples of popular Green ETFs?  The following six funds have been around for a few years and have established track records:

·         PowerShares WilderHill Clean Energy Portfolio (PBW)

·         PowerShares WilderHill Progressive Energy Portfolio (PUW)

·         PowerShares Cleantech Portfolio (PZD)

·         Claymore/LGA Green ETF (GRN)

·         Van Eck Global Alternative Energy ETF (GEX)

·         First Trust NASDAQ Clean Edge ETF (QCLN)

The hot sectors at the moment are wind, solar, and energy storage, or battery technology.  However, on a long-term basis, the world’s third largest industry, water production, may hold the most promise.  The demand for water is growing geometrically, and the ability of our planet to supply it is not infinite.  Global warning only adds to the problem.  The World Health Organization estimates that 1.1 billion people don’t have access to adequate drinking water and 2.6 billion live without proper means of sanitation.  A few water remediation ETFs that may profit from their respective solutions are:

·         PowerShares Global Water Portfolio (PIO)

·         PowerShares Water Resources Port (PHO)

·         Claymore S&P Global Water Index ETF (CGW)

Although many environmentalists may not have bought into the idea, nuclear energy constitutes a large and viable clean energy alternative.  Nuclear power plants actually contribute 70% of our domestic “non-carbon-based” energy.  The World Energy Congress is convening this week in Montreal, an event held once every three years.  The 100-country-strong organization brings together governments and industry to find energy solutions on a global scale.  The theme this time around is nuclear, with a projected minimum of one thousand new reactors on the drawing boards today.  At $4 billion per reactor, that translates to a $4 trillion market.  A few nuclear ETFs poised to succeed are as follows:

·         PowerShares Global Nuclear (PKN)

·         Market Vectors Nuclear Energy (NLR)

·         iShares S&P Global Nuclear Energy (NUCL)

As with any other investment, you must perform your own due diligence to determine which Green ETFs match your personal selection criteria and risk tolerance profile.  The funds listed above are examples in the industry and should not be construed as an endorsement or recommendation for future investment.