PBW 2Q report
- From: "Don Tiberone" <DonTiberoneNOSPAM@xxxxxxx>
- Date: 02 Jul 2006 15:43:27 EDT
Or more specifically, the 2Q report of the index that it tracks.
http://www.wilderhill.com/pdf/2006%20Q2%20ECO%20Quarterly%20Report.pdf
2006 Q2 Quarterly Report: WilderHill Index Clean Energy Index. June 30, 2006
The Second Quarter of 2006 opened with the Index (ECO) at 227.14, and ended
at 201.25.
Q2 thus had a negative return of -11.4%. As expected tracking the notably
volatile clean
energy sector, the Index had sizable intra-Quarter movement as well.
As a clean energy Index we're quite skeptical of coal. We are mindful of the
vast domestic
reserves in America and China, and we strongly support growing U.S. energy
security.
Interestingly too if CO2 is taken more seriously ahead, true 'clean coal'
may well become
a real part of the energy portrait since renewables alone can't meet all
needs for years.
With that in mind new thinking may, potentially, grow technologies that can
remove CO2
from the coal equation. Carbon capture & sequestration might be on the
horizon to
remove all CO2 and other pollutants, and those more advanced technologies
may one day
be debated by us for their appropriateness for the Index. We will watch for
the so-called
'clean-coal' technologies that can safely prevent carbon/other pollutants
from entering,
in the first place, either air or sea (we note ocean acidification now looms
as a recentlydiscovered
issue). If capturing CO2 for thousands of years is feasible, then arguably
it may
perhaps be considered an important although at-best-second-choice index
technology.
We'd emphasize that coal today is not yet clean energy, from mining
operations aspects
to even advanced coal-fired plants that emit massive CO2, mercury, etc.
Robust future
sequestration might be different, but 'clean coal' as seen today is not yet
well in line for
clean energy. Compared say to renewables like solar, wind, geothermal or
wave power -
coal at present is much different and simply not desirable for an Index
here. In short we
seek clean technologies that prevent pollution in the first place. When that
cannot be
met, we may consider technologies delivering far better than incremental
gains in
reducing pollutants. Our approach is also notably beneficial for indexing
here: because we
omit the fossil fuels like coal, the WilderHill Index (ECO) can provide
smarter and stronger
non-correlation with fossil fuels stocks than an index that includes coal
stories.
As the first Index on Wall Street having low-carbon solutions as a core
theme and still the
only clean energy Index tracked by a live Fund, we're bound to pursue smart
low-carbon
technologies that generally prevent pollution in the first place. Hence the
fact another
Index currently has coal technology today provides helpful divergence from
ECO. Going
forward, the returns of any Indexes with browner energy stories can provide
interesting
comparative performance data relative to the cleaner WilderHill Index (ECO).
It may be
interesting to see this unfold; we'll look at comparative returns one-year
out.
I
ndex Sector Weighting Changes for Q3
A benefit of dynamic design in the WilderHill Clean Energy Index (ECO) is we
can
incrementally right-size Sector weights as clean energy matures and evolves.
For instance
there's been a remarkable increase lately in U.S. and global importance of
ethanol;
capital inflows there are growing more significantly relative to other
areas. In response
we incrementally increased now weighting for this 'Cleaner Fuels' Sector so
that it is 14%.
Other Sectors have changed incrementally too and reflect as usual the
changing growth
rates of various parts of the clean energy sector. Sector weights now are as
follows:
Renewable Energy Harvesting, 33%; Power Delivery & Conservation, 20%;
Cleaner Fuels,
14%; Energy Conversion, 14%; Energy Storage, 13%; Greener Utilities, 6%.
Five Additions to the Index: ANDE, AMAT, CLRK, PSD, VSE
For Q3 we've added the following 5: Andersons (ANDE) is a producer of
ethanol & biofuels
that's highly-diversified across relevant agricultural businesses; Applied
Materials (AMAT)
is the world's largest semiconductor equipment firm that's also fast growing
its solar PV
efforts; Color Kinetics (CLRK) sells color and more notably to us White,
Light Emitting
Diode systems; Puget Energy (PSD) is a Utility ramping wind-power installed
base and
energy efficiency programs and we note they don't own or control nuclear
plants; and
VeraSun Energy (VSE) is a pure-play and second largest ethanol producer in
the U.S.
Deletions: BOX, IMGC, MAG
Last Quarter we reported that a friendly offer had been made to buy out
industrial-gases
component BOC Group (BOX) and that initially moved the Index component stock
sharply
higher in January. The first offer was rejected as too low but as noted, a
follow-up offer
made in Q1 was accepted with the purchase of BOC to be consummated in latter
2006.
That process since moved forward in orderly fashion. Because BOX is going to
be soon
bought and subsumed in another group, it is deleted at end of Q2 from the
Index (ECO).
There usefully remain two industrial hydrogen-makers still in the Index
(ECO) for the
Cleaner Fuels Sector, though BOX was interesting in part for being one
foreign-based (non-
U.S.) component in the Index. In pretty similar manner, Intermagnetics
(IMGC) was also
sold during Q2 and so they've been removed with this rebalance too. We thus
have lost
the superconductor aspect from that stock, but we note that the Index (ECO)
still has a
superconductor component that's also nicely a pure-play.
The one decision we did find difficult was deleting Magnetek (MAG) at end of
Q2. The
company's nascent power delivery technology have been like 'an old friend'
to us and
MAG was in early predecessor Indexes. But their stock was impacted by issues
not-wellrelated
to clean energy and they've for too long been hovering just above the
forceddeletion
floor; unlike some company plunging to near the floor in a brief fall, they'
ve also
gone in and out of Index eligibility in the past. After some discussion they
were removed,
but will be monitored for possible company growth and relevance ahead.
One small glitch that did arise in Q2 was Index component Scottish Power had
a temporary
symbol change for technical stock market reasons. For a few weeks, its
normal pricing
didn't appear and so a webpage showing Index components didn't read-out for
SPI
valuation during those days. But there was no impact on the Index, nor on
the tracking
fund since those always had the proper temporary symbol. Our webpage for
daily stock
pricing resumed, although the company name for SPI still remains down on
Yahoo.
Our Facility Solar Upgrades: During Q2 we added a 2nd, polycrystalline solar
power PV
grid-tie system of 24 panels@120 watts each to an SMA 2.5 kW Inverter. We
look forward
to comparing polycrystalline efficiency & performance vs. our primary
monocrystalline PV.
We also upgraded our solar data monitoring to directly measure data for
Irradiance,
individual & combined power outputs, temps etc. That data are in addition to
existing
read-outs for building demand and we look forward to even further
improvements here.
We also switched in Q2 from a simple bi-directional Utility power meter on
our building,
to an innovative Time-Of-Use (TOU) meter. With TOU we benefit in two ways.
One is we'll
produce the most power at the height of day when the TOU charges us (or more
often
buys back from us) electricity at retail rates. We'll get a sizable credit
from this. For
instance on remarkably long-summer days we may generate over 26 kWh/day -
with most
of that during the 12 p.m. to 6 p.m. peak periods when we're 'earning the
most back'.
Secondly we can readily move our most power-hungry activities off that
Noon - 6 p.m.
(Monday-Friday) period, and consume power instead during more off-peak
periods. For
instance powering up a solar/ethanol powered Plug-in Hybrid Electric Vehicle
(PHEV) can
be done off-peak. That also allows us to generally avoid fossil fuels for a
car to boot.
Conclusion
The Second Quarter of 2006 opened with the Index (ECO) at 227.14, and ended
at 201.25.
Q2 thus had a negative return of -11.4%. Volatility was a watchword for the
whole clean
energy sector and thus for the Index in Q2. Yet look back at six years of
data and there's
ample history of sharp movement downwards (as well as up). It might be said
from that
long-term perspective that even the strong drop in latter Q2 is quite
normal; it wasn't
surprising to see this sector and thus ECO go sharply down by over ~25%
during May/June
- given the WilderHill Clean Energy Index had first increased by 40%+ since
January.
Four newcomer Indexes also appeared in May. We welcome them all since subtle
differences tracking clean, alternative and new energy stocks can be a
big-tent with
plenty of space for entrants, and because the sheer quantity reflects
fast-growing interest
in clean, alternative and new energy. Useful differences in Index design
(albeit only
incrementally distinct at bottom) also provide comparisons with WilderHill
Index (ECO).
Because ECO has long been a leader and is now the Benchmark for clean,
alternative
energy - and given we're passionate about Indexing - we're delighted by the
interest.
Two major areas special to ECO are that it 1) uses a modified equal-weight
design, and
2) focuses on genuinely low-carbon clean energy technologies. While the
charts mainly
show ECO as being the best performing Index overall so far, this time period
is still far too
short to draw robust conclusions; we look forward to having over a year of
data.
We've long been impressed by writings of John Bogle and Burton Malkiel and
found their
piece in the Wall Street Journal "Turn on a Paradigm?" (June 21, 2006) wise
as usual.
Their point that an Index can deliver better performance compared to the
typical activemanaged
equity mutual fund, where the annual operating expense ratio is well over
100
basis points (one percentage point) is pertinent and persuasive. Secondly as
academics,
we'll also be interested to see respective tracking of our modified equal
weight Index vs.
market capitalization weight indexes over time and whether we continue to
outperform.
Five stocks were added to the Index (ECO) at end of Q2: ANDE, AMAT, CLRK,
PSD, VSE.
Three stocks were removed. Sector weights were incrementally changed and
these now
are as follows: Renewable Energy Harvesting, 33%; Power Delivery &
Conservation, 20%;
Cleaner Fuels, 14%; Energy Conversion, 14%; Energy Storage, 13%; Greener
Utilities, 6%.
There was a surge of investing interest in corn ethanol by Wall Street in Q1
& Q2 that in
the long run may be neither sustainable nor an especially healthy
development. Some fast
money pouring in arguably lacked prudent understanding of ethanol, and
downsides of a
first-generation ethanol that's still corn-based rather than cellulosic. For
instance
conflicts in ramping a food product as fuel, the difficulties in transport,
splash-blending,
corrosivity, ambiguous greenhouse gas benefits, necessity for government
subsidies and
roughly 30% E85 mileage penalty compared to gasoline, may all argue for 2nd
generation
cellulosic ethanol instead using agricultural waste products, fast-growth
switchgrass, etc.
In conclusion after rising by more than 30% the previous Quarter, it was
hardly a surprise
to see the sector and thus Index close down for Q2. As emphasized in our
last Report,
there is some inexorable tendency towards regression to the mean in security
prices. The
clean energy sector as a whole moved well down in Q2, and the Index tracked
that well.
Where the Index goes from here having retrenched is utterly unknown. Lastly,
we always
seek first hand knowledge too of clean energy and have installed a new
polycrystalline
solar PV system. As always, we welcome your thoughts and suggestions.
--
"A setback is the opportunity to begin again more intelligently."
-- Henry Ford
"We make money the old fashioned way. We print it."
-- Art Rolnick, Chief Economist for the Minneapolis Federal Reserve Bank
.
- Prev by Date: Don't like it? Too bad.
- Next by Date: DanceswithBulls.com - Post your penny stock picks daily!
- Previous by thread: Don't like it? Too bad.
- Next by thread: DanceswithBulls.com - Post your penny stock picks daily!
- Index(es):
Relevant Pages
|
Loading
