Fitz-Gerald: Seeing Green in Clean Energy ETF Digg It!
Wednesday, 30 August 2006
“My favorite alternative energy ETF is WilderHill Clean Energy," says Keith Fitz-Gerald, a professional investor and money manager with his Fractal Boundaries and newsletter editor of The Skeptical Investor.
He explains, "I don’t think it’s a question of what your returns will be in the future as much as a question of what your returns won’t be if you don’t buy a piece of the alternative energy market while it’s affordable." Here's the reasoning behind his long-term bullishness.
“Powershares WilderHill Clean Energy (PBW ASE) is an exchange-traded fund designed to mimic the performance of the WilderHill Clean Energy Index. How does that help us identify tomorrow’s winners?
"Well, for starters, the index has some pretty rigorous rules for inclusion, so odds are the weaklings will be weeded out. Think of it as a prescreening process in which only the healthiest companies—the ones with the best chance to succeed—make the cut.
“One of the requirements is that the market cap be at least $200 million or above. Smaller viable companies can be included, but they’ve got to have a three-month average capitalization of at least $50 million, a three-month closing price of more than $1 per share and be listed on a major exchange.
“Another thing that makes the index attractive is that it’s equally weighted. No stock may exceed 3% of the total, which means the bigger companies won’t unfairly sway the index. This gives us two benefits.
"First, it increases our profits when the smaller companies really take off, and it reduces our risk if one of the bigger companies takes a hit. Given that we’re talking about a historically volatile sector, I’m all in favor of anything that reduces risk!
“In my book, the best part about owning PBW is not having to guess which alternative energy will be the biggest winner since the ETF is comprised of all forms of alternative energy across nearly 40 companies, including Evergreen Solar, Ballard Power and Zolteck. Since I first recommended PBW to you, the reasons for investing in alternative energy have become even more brutally clear:
1. Continued violence in the Middle East means upward pressure for oil.
2. British Petroleum’s August 7 oil field disaster has affected 40% of all crude oil shipments from Alaska for months or maybe even years.
3. Unstoppable growth in China, which is now the second-largest oil consumer behind the U.S.
4. Lack of refinery capacity worldwide.
5. Political tensions in South America could threaten Venezuelan oil imports to the United States.
6. Potential for a whopper of a hurricane season, which could disrupt underwater rigs affecting oil and natural gas supplies for months to come.
“The alternative energy market is going to be a long-term play just as the oil market took decades to develop and mature. But now that $70 oil is here to stay and $100+ a barrel is likely, it’s a different ball game altogether, and savvy investors will laugh all the way to the bank in the near future.
“When it comes to alternative technology, we are staring the future in the face. I believe the industry as a whole is about where personal computers and cell phones were only a few short years ago. Quantum leaps in innovation and efficiency are dramatically lowering production costs, making alternative technologies ever more cost effective.
"What’s more, the longer oil prices remain elevated, the more popular viable alternative technology will become. In addition to oil prices sustaining alternative energy development, there is political pressure coming to bear as well. For instance, the state of California recently approved a plan known as the million-roof initiative.
"This initiative calls for a $3.2 billion fund that would provide rebates for a million solar roofs in several electric company territories. It’s the first of many programs nationally that will further increase demand for products manufactured by the companies included in the WilderHill ETF.
“Shortly after I profiled PBW last year, it shot up to $24 a share, leaving many investors unable to grab it under my $17 buy limit. But no longer. Thanks to the summer doldrums I told you about, PBW is giving you another opportunity to get in at an attractive price.
"Rest assured, there is nothing wrong with PBW; its current discount is the result of the small-caps—which comprise the WilderHill index—generally falling out of favor in past months and declining as a result.
“WilderHill is trading around $17.60. I want you to keep an eye on it and buy PBW (or add to your position) on dips under $17. Look for a doubling of the price within the next 24 months. Conservative investors should put stops under $15. If oil drops in the short- to intermediate-term, PBW will be more volatile than usual, but don’t let that dissuade you from buying it. Alternative energy is here to stay.”
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