NEVs blog

ETF sponsors continue to add products in an effort to leverage the strong interest in sustainable energy.   Growing from PowerShares’ initial entry (PBW) in 2005, we saw two additional ETFs introduced in 2006, and an additional four in 2007.   Of the seven ETFs, only PBW with assets of $1.1 billion USD has attracted assets in excess of $100 million USD.  And total trading volume for the seven securities is a relatively small $600k USD per day.    The table below summarizes our research: 

Notes:  ADV = average daily volume. 

Sources:  Morningstar, Fund Sponsors, Yahoo Finance 

We’re not sure what explains this slow start for index based investing in sustainable energy but the sector is still relatively new with little track record for many of the companies Camino tracks.   We think the lack of history, and the multitude of business strategies being pursued by sustainable energy companies, have made it difficult for many investors to understand the sector and to invest in the indicies.   That’s why Camino has worked hard to carefully determine what the companies are doing and to make this information available in our database and our PurePlay indicies.    Camino offers product licenses for the PurePlay indexes to investment product sponsors to serve their strategic needs.

   

September 15, 2007 – US and German exhanges offer investors access to 63% of the market cap of Sustainable Energy Businesses tracked by Camino. The top ten exchanges, shown below, offer access to 93% of SEBs.

Interestingly, a significant amount of market cap is traded on a few exchanges due to listing of highly successful companies like REC, Vestas, Abengoa, Gamesa, and Suzlon. 

The exhanges available to early stage firms, such as the Toronto Venture Exchange, the London AIM, and the US Pink Sheets collectively represent about 1% of the market cap tracked by Camino (if Calpine is excluded as a special case….it is only listed on the Pink Sheets because of its bankrupcy filing. )  The small size of these listings doesn’t provide much trading opportunity.

Phillips completed it acquisition of Color Kinetics, Inc. on August 27, 2007.   From its opening $10.00 IPO price on June 22, 2004 until its last trade at $33.98 on August 23, 2007 IPO investors saw annual returns of 47%.   In our view this was a very advantageous sale for the shareholders and clearly represents a strategic purchase by Phillips.

Growth in ’06 had slowed to 24% from the ’05 growth rate of 32% and operating earnings were not material.   Adjusting for Color Kinetics, Inc’s significant cash holdings the purchase price was between 8.5 – 9.0 x the mid 2007 revenue rate.  The other small companies in LED sector must have taken notice of this valuation level.

August 23, 2007 – the 316 sustainable energy stocks we track have significant market capitalization, $202.9 Billion USD as of today.  To provide some meaningful size and profitabity reference to the traditional oil and gas business we include XOM’s returns.  But how big is XOM?   The answer is big, $464.5 Billion USD big as of today, or  2.3 times the size of the entire sector Camino tracks.   As an investment the return on XOM in 2006 was outstanding and while it is not as robust YTD it is outperforming all the broad based indices we track.   Our take away?   There is a lot of room for growth in sustainable energy businesses and as investors these stocks require the same discipline as any other investment.   

August 2, 2007 – The market is starting to reward the non-hydrogen powered fuel cell companies with increased valuations.  Of the top ten public fuel cell companies hydrogen companies now represent less than 1/2 the market cap:

Note that we have excluded Hoku from this analysis since Hoku’s push into solar PV takes them out of the pure play fuel cell segment.   

The top ten fuel cell companies can be located by searching the company database for firms where “product = fuel cells” and setting “size = large or medium or small or micro”.