Investment Thesis: Clean Energy ETF

Oct.17.06 | About: PowerShares WilderHill (PBW)

I bought an initial position in PowerShares Wilder Clean Energy Portfolio ETF (NYSEARCA:PBW) yesterday at 18.34. I have no idea whether this is really a good time to buy it or not, but it’s certainly a better time than last May, when the price was 24.07.

The ETF has retraced 68% of its rally from the May '05 low to the May '06 high, and it appears to be ready to resume its advance. If PBW does go down from here, it won’t hurt my feelings, because I plan to buy more and I wouldn’t mind getting it at a better price. This is a long-term investment that has a chance to turn into a real home run for my descendants.

The use of energy from alternative sources should grow exponentially over the next several decades as oil becomes harder to get. It’s a bonus that PBW happens to be negatively correlated to major portfolio holdings, and should help to hedge them.

This exchange traded fund is based on the WilderHill Clean Energy Index and seeks to deliver capital appreciation. There are about 50 components, including Pacific Ethanol (NASDAQ:PEIX), in which Bill Gates invested $40 million last April just before it peaked near 40, and subsequently dropped below 15; and Evergreen Solar (ESLR), which recently traded below 8 after being as high as 17 last spring.

Industries represented in the portfolio are: Energy 27%, Technology 23%, Industrial 20%, Utilities 9%, Basic materials and Electronics, 8% each. More than 10% of the portfolio is foreign stocks.

The fund’s current distribution rate is .23% and the expense ratio is .60.

This ETF is volatile. It has not been trading long enough for accurate figures to be calculated, but I estimate the beta is close to 2.0.