Broader markets were mixed for the week. The S&P 500 (+0.8%), US REITs (+2.7%), and EAFA (+1.6%) all rose. Emerging markets fell (-1.1%) and as did the basket of commodities we monitor (DJP -2.0%)
Sustainable energy stocks weren’t mixed and fell sharply across the five strategies we track.
Camino Energy indices
Coupled with the sharp drop we reported for week ending 9/5, these strategies have declined between 13% and 18% (in USD terms) for the month of September.
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In our view sustainable energy stocks are suffering declines driven, in the most part, by macro factors and not by individual company performance. In the case of Solar, 32% of the index market cap is from companies headquartered in China. In September the Shanghai Composite index has declined 13.3% Another 43% of the Solar index is from companies headquartered in the Euro zone which has currencies declining against the dollar and is facing concerns about an economic slow down. Add to the European angst the concerns regarding the US financial sector and we expect a reduction in the flow of funds into hedge funds and hence growth companies.
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The decline is commodities is also changing the perceived risk/reward perspective for investing in sustainable energy companies. Analysts like Caylon’s George Kotzias are saying “We believe a change in the perception of the current energy markets brought on by falling oil prices has led investors to believe that there is less of a need for solar energy”. And the decline in commodities prices isn’t a result of a sudden spurt in new supplies but rather results from declining demand resulting from slowing economic activity.
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Slowing economic growth, concerns about the ongoing rational for sustainable energy, and weak financial markets seem to be selectively impacting the high growth, energy price driven sustainable energy strategies. The result last week was 66 stocks declining and only 22 stocks advancing. Until these underlying large scale factors turn, it looks like these stock may continue to languish.