Claymore Interview: Profiting with Clean Energy, Water, Shipping ETFs

US President Obama has made government investment in alternative energies a priority, and this has led to growing interest in investing in the alternative energy sector. In this exclusive interview with DailyMarkets.com, Claymore Securities president, Christian Magoon, discusses some of the sectors they cover such as clean energy, solar energy, water and shipping. Claymore Securities is an ETF provider that differentiates itself from the crowd by providing ETFs focused on specific sectors rather than just broad indices.

With the new administration set to invest more in clean energy, solar energy could benefit. How is the Claymore/MAC global Solar Energy ETF (TAN) structured and what type of exposure will it give investors to the possible upside under the new administration? Is most of the allocation in US or global companies?

Prior to the new administration declaring their commitment to renewable energy, TAN was launched as the first exchange‐traded fund that provided investors access to the solar energy industry. Seeking to track the performance of the MAC Global Solar Energy Index, the Fund is currently comprised of 25 companies from around the world and includes businesses with significant exposure to the solar energy industry and access to potential favorable long‐term fundamental trends. The Fund’s portfolio spans the broad range of businesses comprising the industry-providing valuable diversification across the business lines in this emerging technology- with investments in companies including solar equipment manufacturers, solar installation services and material providers for the production of solar equipment.

In the U.S., solar energy continues to gain traction with President Barack Obama’s commitment to renewable energy. From plans for doubling the U.S.’s renewable energy production over the next three years to the recent discussions of $25 billion in tax credits intended to help boost renewable energy production-on top of last October’s the tax credit package incenting companies to invest in solar power projects-it appears that solar energy’s time may have come.

However, the technology’s true potential is only understood when you consider that the “green tech revolution” is a global phenomena with some of the superior technology being developed in regions such as Europe and Asia. For example, just recently the Chinese government took steps to facilitate mergers among companies in their domestic solar energy market and they may be pursuing other initiatives to help boost demand. Consistent with this level of global activity, approximately 74% of the companies in the Fund were based outside the U.S. as of 12/31/08-Fund composition is subject to change daily-and included leading names like Renewable Energy Corp, Q‐Cells, Solarworld and LDK Solar Co (LDK). Among TAN’s U.S. holdings were First Solar Inc (FSLR), MEMC Electronic Materials Inc (WFR) and Sunpower Corp (SPWRA). Given the industry’s global nature, the Fund’s ETF structure provides investors with a more convenient (and cost effective) way to invest in non‐U.S. solar companies than investing in individual stocks and bonds.

It’s not only clean energy that is important, in many areas of the world clean water is an even greater concern. What areas of the world does the Claymore S&P Global Water Index ETF (CGW) focus on? And how fast Is the demand for clean water in these areas growing as the population grows?

The two major issues in the world pertaining to water are supply and cleanliness. As the world’s population increases, the supply of water is being stressed due to greater consumption, which drives the need to increase and improve water treatment. In addition, many developing countries lack the basic infrastructure to provide their growing populations access to clean water, even when the treatment facilities are in place. In fact, in an October 2008 speech by the U.S. Director of National Intelligence, it was forecasted that by 2025 over 1.4 billion people in 36 countries will be without sufficient water for drinking and agricultural needs.*

We believe these challenges could mean long‐term investment opportunities. For example, as countries and municipalities respond to the current and escalating water crisis by investing money in their water delivery and treatment systems, strategically positioned water‐related companies may be able to benefit. For investors looking to position for this opportunity, CGW is designed to offer balanced exposure to the water industry-50% allocated to water utilities and infrastructure and 50% to water equipment and materials companies-with exposure to water‐related companies in approximately 10 countries. Some of the Fund’s top holdings as of 12/31/08 include companies like Veolia Environment (VE), Geberit, United Utilities Group (UU) Suez Environment and ITT Corp (ITT).

*Worldbank.org, 2007

The shipping sector is currently suffering due to the overall decline in shipping activity driven by reductions in production of goods and consumption of goods produced. How can the Claymore/Delta Global Shipping Index ETF (SEA) give investors the chance to position themselves for a future upturn?

It is estimated by Delta Global Indices, LLC that approximately two‐thirds of the world’s goods and materials are transported by sea. As a result, the shipping industry is regarded by many to be a barometer of world‐wide economic health. For instance, the current global economic slowdown has impacted shipping companies over the short term through decreased demand and increased capacity. Bullish investors that understand the typical fundamentals of a growing global population-wealth creation, changing food patterns and infrastructure growth- may find this an opportunistic time for shipping stocks as the early part of a recovery may offer some significant returns potential. For example, since 1949, in the first 40 days of the subsequent bull market, stocks regained on average over 34% of the value lost during the preceding market down turn. Though, we should remember that history is our guide and not the rule.

Also, as shipping companies have historically paid attractive dividends, investors that hold or purchase beaten down stocks in the industry are potentially being paid to wait as they remain poised for a possible rally. There is no guarantee that this strategy would be successful and there is a potential to lose your entire principal.

What are the main shipping companies that the Index focuses on?

The Index, which includes 30 securities within the maritime shipping industry, focuses on companies that generate over 80% of their revenues from operating and/or leasing ships that operate in various areas of the shipping industry including dry bulk, tanker, container, specialty chemical or liquid natural gas goods.

Current top holdings as of 12/31/08 for the Fund include Teekay LNG Partners (TGP), Genco Shipping & Trading (GNK), D/S Norden, Compagnie Maritime Belge and Euronav NV.

Comments

[PeteK:]

I can see shipping is important.
Water ? Not yet.

Feb 04 12:00 AM

[Mac Slavo:]

Jimko, I have a slightly opposing view, in that I believe it is a great time to get into water via the Claymore CGW ETF. As countries like China begin infrastructure projects, we are going to see an increase in revenues to companies held in this ETF. Of course, this can easily take several years before you see real gains by holding this ETF.

Shipping, while also important, seems like it can potentially lose a little more value. I will be picking up shipping companies as soon as I see any hint in economic recovery globally. I don't think the US will pick up full swing insofar as consumption is concerned for some time, but Australia and Europe may recover enough to get shipping companies moving again.

In both cases, I think one could start acquiring shipping and water ETF's and stand to make a good profit in 3 - 5 years.

mac

Feb 04 10:17 AM