PowerShares Global Transportation

By John Addison (7/27/09). The transportation industry is beginning the biggest transformation since Henry Ford started making cars affordable for the mass market. Hybrids, plug-in hybrids, and electric vehicles point to a long-term transition from inefficient mechanical drive systems to efficient electrical systems. Engines powered by petroleum fuels are being replaced with electric motors powered by renewable energy. A growing amount of goods movement is by rail and moving people by high-speed rail.

A portfolio of companies that participate in these long-term trends comprise the portfolio of Invesco PowerShares Global Transportation (PTRP) – an electronically tradable fund (ETF). The fund is based on the Wilder NASDAQ OMX Global Energy Efficient Transport Index(sm). The Index includes global companies engaged in businesses that are likely to benefit from a transition toward using cleaner, less costly and more efficient means of transportation.

The fund attempts to rebalance quarterly with 25 percent holdings in each of four sectors which it defines: alternative vehicles, rail and subway systems, intermodal, and transportation innovation. The clean transportation companies are headquartered in many countries and participate in many sectors:

United States 37.10%
Japan 12.61%
United Kingdom 8.02%
Taiwan 7.99%
Italy 5.81%
France 5.55%
Germany 5.42%
Canada 4.80%
China 4.41%
Chile 2.91%
*as of 7/24/09

Top Holdings
BYD Co. Ltd. 4.41%
Giant Manufacturing Co. Ltd. 4.03%
Merida Industry Co. Ltd. 3.95%
GS Yuasa Corp. 3.85%
Shimano Inc. 3.74%
Maxwell Technologies Inc. 3.71%
Wabco Holdings Inc. 3.45%
Fuel Systems Solutions Inc. 3.29%
Alstom S.A. 3.16%
Piaggio & C.S.p.A. 3.05%

The fund is likely to gain from the growing success of high-speed rail which provides hundreds of millions of annual rides in Japan, France, and Spain, and is destined from major growth in other countries such as China and the United States. Holdings include Alstom, Kinki Sharyo, and Bombardier. Other holdings will benefit from the shift of goods movement from truck and plane to more efficient rail: CSX, Norfolk Southern, Union Pacific, Burlington Northern, and Canadian National Railway.

Over a billion people own bicycles or scooters – e-bikes and e-scooters are high-growth segments of this industry. The fund includes major players such as Giant, Piaggo, Merida, and Shimano.

Lithium batteries and ultracapacitors are integral to hybrids and electric vehicles. The fund includes BYD, GS Yuasa, Maxwell, Ener1, and Saft. Energy storage dominates the business models of these companies. Missing from the fund are electronic giants, where batteries are only part of their business such as Panasonic, Sanyo, Hitachi, NEC, and several others.

Disclosure: I own shares in this fund, as well as Alstom and Giant. Investing in this fund has a number of risks. It is concentrated. Most holdings are international. Illiquidity is a concern with few shares trading daily. Automobile manufacturers, except for BYD, are notably absent from the fund. Nevertheless, its 34 holdings provide some diversified global exposure into key players in the future of transportation.

Fidelity Select Automotive (FSAVX), representing a more traditional automotive portfolio, is up 86% year-to-date. iShares Dow Jones Transportation (IYT), with diversified goods movement and transportation services holdings, is up about 2% year-to-date. PowerShares Global Transportation (PRTP) is up about 27% year-to-date. As we transition to more efficient transportation with a smaller carbon footprint, PRTP may have long-term potential.

John Addison publishes the Clean Fleet Report. A number of his articles have also appeared in Cleantech Blog and Seeking Alpha. On August 22 he will present Cleantech ETF Investing at the SF Money Show.