Can Obama's Policies Revitalize Traditional Oil ETFs?

It seems that everywhere you turn, you'll find recommendations for Obama-friendly ETFs. And if there's one consistent theme, it's the demand for "greener" alternatives to energy.

Yet with crude oil not seeing $57 per barrel since February 2007 more than 20 months ago, and with the price multiples (P/Es) on alt energy more than double that of "traditional energy," the rhetoric from the campaign trail won't be enough to stimulate alt energy ETFs.

A simple truth is this: When oil is skyrocketing, alt energy is a consistent war cry. When oil is fading more rapidly than stock assets, it would seem that the best way to make money from the alt energy push is from United States Oil (USO).

That's right. If USO climbs, alternative energy initiatives will be more prominent and the demand for corporate shares of those companies will rise as well.

I'm not suggesting that environmentally conscious investors put their dollars to work in "Big Oil" or the commodity itself. But I am being realistic. For all the talk about Obama-friendly energy alternatives like the PowerShares Wilder Clean Energy (PBW), this one has lost -70% YTD through 11/12/08. (Try to find a diversified ETF with a more troubled 2008.)

The "better Obama ETFs" are not leaps and bounds better right now. Yet I'd rather diversify in unique ways; that is, I like the idea of a "clean technology ETF" that captures infrastructure, green companies and a bit of mid-cap growth.

Consider the PowerShares "CleanTech" Fund (PZD). This exchange-traded fund is a "greener" take on infrastructure. Unlike the U.S. industrial revolution, the next wave of international growth will be cleaner... more "resource-conscious." And Obama will be emphasizing that point at every discussion of energy independence and infrastructure improvement.

“Cleantech" companies as those that derive the majority of their business from products or services that improve productivity or performance while reducing costs, resource consumption, pollution and toxicity. Expressed another way, these are knowledge-intensive corporations that add economic value (productivity, performance, etc.) while minimizing the use of the world's natural resources.

Again, the equity world is so battered, there are no winners for the moment. But when the time comes... when initiatives are announced... the investments that stand to benefit the most from "change" are investments like PZD.

And for those who are disgusted with a direct investment into the commodity via USO, you'll note that PZD is charting a not too dissimilar path. So if you want to feel good about Obama-friendly companies... investments that will prosper on greater demand for the efficient use of natural resources as well as infrastructure enhancement... "CleanTech" PZD may be the ticket.

Of course, if you're not disgusted by traditional resources, you might want to take a look at PowerShares Dynamic Energy Exploration and Production (PXE). This exchange-traded fund is geared towards small- and mid-sized companies… not “Big Oil.” PXE represents smaller companies that have attractive price-to-book and attractive price-to-earnings. Helping established explorers of energy grow from smaller companies to bigger companies works in the Obama playbook, even as “windfall profit taxes” are talked about with “Big Oil.”

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[Prudent Man...:]

Drill baby, drill is now print, print money now.

If economies could grow because of governments increasing money supply and not productivity there would be no poor nations.

2008 Nov 12 03:37 PM

[Socialism c...:]

The real question is "can Obama revitalize anything?" The answer is no: he wants to tax the engines of prosperity -- those who provide capital. Socialism does NOT work. The only revitalization he will accomplish is Revolutionary Societies and gun sales. I'm in!!

2008 Nov 12 04:17 PM

[thedozer:]

Long companies under obama...

Winchester, Marlboro, Budwieser, Remington, Copenhagen
anyone who makes Duct Tape or CANNED GOODS is a solid sector!


good luck boys

2008 Nov 12 05:09 PM

[sbenard:]

I hate to say it, but the truth is that under an Obama Administration, crude oil prices are bound to rise rapidly as soon as the slightest sign of an eocnomic rebound occurs. That seems to be the gist of this article. Since we are so heavily dependent on both oil, and imported oil, this is eventually going to be a no brainer investment.

I saw Boone Pickens on television today, and he warned that the low oil prices we are seeing right now will only be temporary. He said crude will be over $100 again a year from now. He pointed out that global crude reserves are 6-9% lower at the end of 2008 than at the beginning of 2008. That only bodes well for one thing -- costly crude!

2008 Nov 12 06:00 PM

[Pipo:]

Pickens on Oil: "I don't see any lower than it is today"

oiltradersblog.blogspo.../

2008 Nov 12 06:52 PM

[CLH:]

Boondoggle Pickens is whistling in the cemetery.

2008 Nov 12 10:27 PM

[CLH:]

Pickens is whistling in the cemetery.

2008 Nov 12 10:30 PM

[Thomas Smic...:]

Obama? Policy? Creative tax shelters. A sure winner.

2008 Nov 13 12:13 AM

[sbenard:]

Thanks for that link! Good stuff!


On Nov 12 06:52 PM Pipo wrote:

> Pickens on Oil: "I don't see any lower than it is today"
>
> oiltradersblog.blogspo.../

2008 Nov 13 12:12 PM

[sbenard:]

Pipo, I was glad to find your blog. I've been a fan of Jim Rogers for years. No one speaks with such candor as he does!

2008 Nov 13 12:39 PM

[danno:]

Gary, you have some good thoughts, that merit more than the daytrader doofus responses you are getting. Unfortunately the macro market issues and panic have overwhelmed common sense in the markets. In the long term, both USO an PZD look like very good bets, but I'd be just as bullish on natural gas, (and perhaps even nuclear in the long term).

In a world where capital is now very dear, raising prices tough, and sales growth near impossible, energy efficiency will be numero uno followed by smart-grid technologies and be the better clean energy investments (adjusted for risk) relative to solar, wind, and the pipe-dream hydrogen and bad-dreams clean coal and grain-based fuels. In fact, any technology or business that helps slash costs and cost of inputs (and have relatively low investment requirements) will be king during this capital crisis.

However even if wind and especially solar are going to be a big part of the renewable energy solution, and no doubt the LONG-TERM forecast for solar is bright, the kind of pricing and margins for both products may well be bigger determinants of investment returns versus just the absolute demand growth.

Given the environmental liabilities for building coal-fired plants, the mirage of carbon sequestration, and improvements in gas-fired ICC power-plants, the long-term secular demand for natural gas should exhibit strong growth. This then paints a darker picture for Canadian oil sands since it takes so much gas (and water) to make that oil.

2008 Nov 13 03:37 PM

[Sam Liu:]

is there an S&P100 energy ETF

big intl oil would buy alt. energy, at least bp would

2008 Nov 29 07:33 AM