Political endorsement of an industry, and how you can capitalize from political capital. Was there ever really any doubt once George W. Bush became the 45th President of the United States, that oil companies would see favorable legislation passed that would enhance their ability to increase profitability? Not in my mind! That being said, is there really in doubt that if the next president is a Democrat alternative energy companies will see favorable legislation passed and signed which will increase their ability to produce clean energy, and thus increase their profits. Not in my mind!
One of my favorite investment gurus Will Rogers once said, “The quickest way to double your money is to fold it and put it back in your pocket”. Each time I foray into investments that I would classify as speculative, and I classify most Alternative Energy companies as such, I can hear old will standing over my shoulder reciting his sage advice. When exploring equity classes that I consider speculative I prefer to minimize my risk, one of my favorite strategies for doing so is to employ Exchange Traded Funds or Mutual Funds. I prefer strength in numbers. Many sophisticated or seasoned investors might feel comfortable with the risk level associated with individual speculative stocks, I do not. Old Will Rogers also said, “Always drink up stream from the herd.” That is the kind of investment advice I can understand.
Over the years investing in alternative energy has been a kin to “tilting at windmills”(indulge me one Don Quixote reference). The risk inherent to investing in individual companies engaged in alternative energy in the past has been, to put it mildly, exorbitant! With a risk profile that even hedge funds shied from, these alternative energy companies were typically persona non-gratta with Wall Street, and certainly with main street investors. The few brave souls who ventured into solar companies of the 70’s, 80’s, and 90’s typically returned to more main stream equities licking their wounds. If they had only followed sage Will’s advice on doubling your money?
If your standing at the edge of the proverbial stream (see Old Will Rogers above), I would encourage you to consider utilizing an Alternative Energy ETF. There are 5 ETFs that I am familiar with that are levered to alternative energy:
First Trust NASDAQ Clean Edge Liquid (QCLN) The investment seeks to track the price and yield performance, before fees and expenses of the NASDAQ Clean Edge U.S. Liquid Series Index. The fund will normally invest at least 90% of assets in common stocks that comprise the index. The index is designed to track the performance of clean energy companies that are publicly traded in the United States and includes companies engaged in manufacturing, development, distribution, and installation of clean-energy technologies including, but not limited to, solar photovoltaic, biofuels and advanced batteries. The fund is nondiversified. (http://finance.yahoo.com/q/pr?s=QCLN)
Powershares Progressive Energy Portfolio (PUW) The investment seeks results that correspond to the price and yield performance, before fees and expenses, of the WilderHill Progressive Energy Index. The fund invest at least 80% of total assets in common stocks of companies principally engaged in the progressive energy business. It normally invest at least 90% of total assets in common stocks that comprise the Progressive Energy Index.The fund is nondiversified. (http://finance.yahoo.com/q/pr?s=puw)
Powershares WilderHill Clean Energy (PBW) The investment seeks results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the WilderHill Clean Energy index. The fund normally invests at least 80% of total assets in common stocks of companies engaged in the business of the advancement of cleaner energy and conservation. It may invest at least 90% of total assets in common stocks that comprise the Clean Energy Index. It is nondiversified. (http://finance.yahoo.com/q/pr?s=pbw)
Powershares Cleantech Portfolio (PZD) The investment seeks results that correspond to the price and yield performance, before fees and expenses, of the Cleantech Index. The fund normally invest at least 80% of total assets in common stocks of cleantech companies. It normally invest at least 90% of total assets in common stocks that comprise the CleantechTM Index.The fund is nondiversified. (http://finance.yahoo.com/q/pr?s=pzd)
Van Ecks Global Alternative Energy Fund (GEX) The investment seeks to replicate the price and yield performance of the Ardour Global Index (Extra Liquid) Index. The fund normally invests at least 80% of total assets in stocks in proportion to their weightings in the index. It will invest at least 30% of assets in securities of non-US companies located in at least three different countries. The index includes companies primarily engaged in the generation of power through environmentally friendly, non-traditional sources. It includes power derived principally from biofuels (such as ethanol), bio-mass, wind, solar, hydro and geothermal sources and also includes the various technologies that support the production, use and storage of these sources. The fund is no diversified (http://finance.yahoo.com/q/pr?s=gex)
I have appended the fund summaries from yahoo.com to provide you a brief explanation of how each fund invests its assets. You might utilize this information to begin your due diligence on each fund. If you choose to invest in the alternative energy sector, utilizing an ETF’s might well prove to be a successful strategy to employ. The current political environment is only one reason to consider investing in alternative energy, volatility in the supply of oil may indeed remain a factor of life for the foreseeable future, no matter which political party is in power. Proven technologies are being enhanced to better utilize alternative energy sources, and companies that in the past would not have considered alternative energies as viable are now on the band wagon, such as: Alcoa, Caterpiller, Duke Energy, Dupont, FPL Group, PMN Resources, Archer Daniels Midland, Deere, General Electric, Seimens, and Owens Corning.
If alternative energy is an equity “play” you are determined to engage in consider the basic thesis I’ve presented above to mitigate risk through the implementation of an ETF strategy. Ok, I will now take the sound advice of Mr. Rogers who said,”Never miss an opportunity to shut up”. Mmmm, he also said “never kick a cow chip on a hot day.” Well, that’s a quote for another topic.
Resources: http://finance.yahoo.com/q/pr?s=gex
http://finance.yahoo.com/q/pr?s=pzd
http://finance.yahoo.com/q/pr?s=pbw
http://finance.yahoo.com/q/pr?s=puw
http://finance.yahoo.com/q/pr?s=QCLN