Clean Technology and Clean Transportation Growth
Members of the cleantech community follow the success of public companies in energy efficiency, renewable energy, and electric transportation. Some people, of course, also invest in these companies or in funds such as exchange traded funds (ETFs). The ETFs discussed in this article provide a barometer for the industry.
For the 30 years from 1979 to 2009, solar energy has grown 33 % CAGR (compound average growth rate). For this decade, over 40 percent is forecast. The U.S. wind energy grew in 2009, despite a severe recession. Now 36 states have utility-scale wind projects. Wind and solar power have created jobs in all 50 states, with U.S companies like GE and First Solar fighting for global leadership. The EIA’s International Energy Forecast 2010 projects renewables to be the fastest growing segment in energy through 2035.
Energy efficiency is in demand. The 2009 Green Building Market and Impact Report found LEED registered green building activity has grown to a cumulative total of more than 7 billion square feet worldwide since the standard was launched in 2000 — more than 40 percent growth in 2009. Energy efficient lighting alone could probably eliminate 20 percent of our nation’s coal power plants. Research firm Strategies Unlimited predicts a 53% surge in packaged LED lighting for 2010 to a total of $8.2 billion. LED lighting is already used in new cars, new computers, and flat screen TVs. Through 2014 they predict a 30.6% CAGR ramp to $20.2 billion.
In transportation, one billion vehicles are becoming more efficient. Cars with 15 percent efficient gasoline engine drive systems are starting to be replaced with electric cars with 70 percent efficient electric drive systems. China alone has 120 million people using electric vehicles ranging from e-motorcycles to e-bikes to e-cars. Detroit initially ignored hybrids and electric cars and is now scrambling to get ahead of the curve. Accenture forecasts 1.5 million electric cars on the U.S. road by 2015. From mobile phones, to mobile computers, to cars, the demand for lithium batteries will grow.
Voting with billions of dollars, the investment community is pouring more money into cleantech. Growth, rapid technology advancement, and industry disruption create exciting opportunities when selecting individual stocks. ETFs can provide diversification and risk moderation.
This article discusses 10 cleantech ETFs. I own more than one of these funds to be better diversified. Some funds are U.S. centric, others are global; some are concentrated in renewable energy, others in clean transportation, others in clean water; some focus on large cap stocks, others on mid and small-cap stocks. There are dozens of mutual funds and ETFs with a green theme that are not listed. Some of these only invest in solar or wind companies; others are more controversial about being green. Let’s explore these 10 ETFs.
Ten Exchange Traded Funds (ETFs)
PowerShares Cleantech (PZD)
PowerShares Global Clean Energy Portfolio (PBD)
First Trust NASDAQ Clean Edge Liquid (QCLN)
Market Vectors Global Alternative Energy (GEX)
iShares S&P Global Clean Energy (ICLN)
First Trust Clean Edge Smart Grid (GRID)
Global X Lithium (LIT)
PowerShares Global Progressive Transport (PTRP)
PowerShares Global Water Portfolio (PIO)
iPath Global Carbon (GRN)
The following description of the funds, performance, top investments, and ratings are a best effort to approximate the date of this post. Ratings from Morningstar are included.
PowerShares Cleantech (PZD) invests in the 77 companies that comprise the Cleantech Index: alternative energy, energy efficiency, advanced materials, air and water purification, eco-friendly agriculture, energy generation and transmission. The Cleantech Group is respected for delivering cleantech market intelligence since 2002. The index is 56% North America, 31% Europe, and 13% Asia. The index is a weighted harmonic average that considers several factors including market cap, PE ratio, and ROE. Median market cap is 1.2 billion. ABB, Siemens, Corning, Schneider, and Johnson Controls are among its top holdings. Morningstar rating is 3 stars. For 3 years, the fund has outperformed most broad averages and is up 2% for the past 12 months.
PowerShares Global Clean Energy Portfolio (PBD) is based on the WilderHill New Energy Global Innovation Index (NEX) with 88 companies who manufacture, develop, and own wind, solar, energy efficiency, and related products and projects. NEX is a rule-based index with weighting modified by sector and market capitalization bands to provide diversification across the clean energy industry. It is rebalanced on the last day of each quarter. This global fund is about 40% North America, 39% Europe, and 21% Asia. Median market cap is about 1 billion. Top holdings include EDF Energy Novelles, China Wind Power, and GT Solar. Morningstar rating is 1 star. The fund has lost 14 % in the past 12 months, hurt by the European downturn and difficulties in large-scale wind and solar project financing.
First Trust NASDAQ Clean Edge Liquid (QCLN) invests in the companies of the NASDAQ® Clean Edge® Green Energy Index. The weighted index of clean energy companies that are publicly traded in the United States includes solar photovoltaics, energy efficiency, biofuels, and advanced batteries. The Index is a modified market cap weighted index in which larger companies receive a larger index weighting. The index is reconstituted twice a year in March and September and rebalanced quarterly. Median market cap is just under one billion for the 53 stocks in the fund. The funds top three holdings are First Solar, Linear Technology Corporation, and Cree. Morningstar rating is 2 stars. The fund has lost 7 percent in the past 12 months.
First Trust Clean Edge Smart Grid (GRID) has similarities to QCLN, both share a few common stocks, but GRID tracks the NASDAQ OMX® Clean Edge® Smart Grid Infrastructure Index (SM) which includes companies that are primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. The index employs a modified market-capitalization weighting methodology. The index is rebalanced quarterly and reconstituted semi-annually. The median market cap is $1.2 billion for the 32 stocks in the fund. The fund is about 70% U.S. and 30% European. The top three holdings are Prysmian, Schneider Electric, and SMA Solar Technology. The fund has lost 11 percent since its inception on November 19, 2009.
Van Eck Market Vectors Global Alternative Energy (GEX) invests in the Ardour Global Index (SM), a rules-based, global capitalization-weighted, index that tracks 30 companies engaged in the wind, solar, and some other cleantech. The average market cap is $4.2 billion. The fund is 39% U.S., 17% China, and a high percentage in Europe. Top holdings include First Solar, Vestas Wind, and Cree. Morningstar rating is 1 star. The ETF is down 17% in the past 12 months.
iShares S&P Global Clean Energy (ICLN) invests in the S&P Global Clean Energy Index of 31 companies, giving access to some international companies that could be a hassle to buy individually. The index weights companies on a modified market-cap basis adjusted for market capitalization and trading volume and is rebalanced semiannually. The ETF is 21% invested in U.S. and 43% emerging providing diversification from the other Cleantech ETFs being discussed. The average market cap is about $6 billion. Its concentration in emerging wind and solar also increase risk. Top holdings include Empresa Nac Elec-Chil-SP, CIA Paranaense Ener-SP, and First Solar. Morningstar does not rate this. It lost 34% in the past 12 months.
Global X Lithium (LIT) is a bet on the growing use of lithium batteries in notebook computers, mobile electronics, electric cars, products, and industrial processes. This ETF is highly concentrated with 50% of this fund is currently in mining companies with lithium being a small part of the companies’ total business. Average market cap is $1.2 billion, 49% U.S., 20% Chile. Top holdings are currently concentrated with Sociedad Quimica Y Minera De Chile 24%, FMC 17%, and Rockwood Holdings 8%. A number of automotive battery companies are included such as Sanyo, GS Yuasa, SAFT, ABT, Ener1, Exide, and A123; but electric car leaders not included are Panasonic, LG Chem, and NEC. The fund has increase 7% since its recent launch.
PowerShares Global Progressive Transport (PTRP) is distinct from the other ETFs by covering high-speed rail, transit, bicycle, and electric vehicle components. The fund is based on the Wilder NASDAQ OMX Global Energy Efficient Transport Index. The Index is rebalanced quarterly using a modified, market-cap-weighted methodology. The 40 stocks in the fund have an average market cap of $2.8 billion. The fund is about 37% North American, 35% European, 6% Japan, and 22% Emerging. Top holdings include Donfeng Motor, Sociedad Quimica y Minera, and Wabco Holdings. The fund has increased 11% in the past 12 months.
PowerShares Global Water Portfolio (PIO) is distinct from the other ETFs listed by mitigating the effects of global warming rather than necessarily reducing global warming. Over one billion people suffer health damage due to clean drinking water. PIO is based on the Palisades Global Water Index. The modified equal weighted portfolio is rebalanced and reconstituted quarterly with an average market cap of $2.5 billion. Top holdings include water and waste service giants such as Suez and Veolia; and water technology companies such as Tetra Tech and Nalco. There is risk in this ETF being European dominated. Morningstar rating is 2 stars. The fund is up 5% in the past 12 months.
iPath Global Carbon (GRN) is an ETN based on Barclays Capital Global Carbon Index Total Return™ (BGCITR) two carbon-related credit plans: 86% European Union Emission Trading Scheme and 14% Kyoto Protocol’s Clean Development Mechanism. The fund has beaten the averages for the past 12 months, basically with zero gain or loss.
This article should only to be a first step in your investigation of cleantech ETFs. A good investment adviser can help you consider these as part of a balanced portfolio of fixed income and widely diversified funds. Given the forecast for growth in cleantech, one or more of these ETFs could be part of your total portfolio.
Disclosure: The author currently owns PZD, QCLN, GRID, LIT, PTRP, GRN and a few of their underlying stocks. John Addison speaks at cleantech conferences, takes part in industry panels, and publishes the Clean Fleet Report.