Cleantech ETFs: Feast Or Famine

Roger Nusbaum submits: A reader asked for my two cents on the PowerShares Cleantech ETF (PZD). I am not a huge fan of this sub-sector. I have one client who has asked for small exposure, and for this I use individual stocks that total about 1.5% of the portfolio.

As a matter of perception I think think these stocks add volatility but I find it difficult to get too heavy because of the feast and famine nature of the underlying business. If oil went to $50 and stayed there forever, oil companies would make money and investors would lose interest in concepts like clean tech.

That said, I was surprised to see that PZD has been less volatile than the broader sector as measured by iShares Energy (IYE):

I included the iShares Industrial (IYJ) because almost half the fund is in this sector. You can decide for yourself which one PZD is a better proxy for.

One last point that makes this difficult for me to embrace is that it seems like there will always be more talk than action in this arena. I buy into the need big time, but don't buy into the progress some say is coming.

Comments

[Chris McKnett:]

Big oil makes a healthy margin with oil even well below $50. The correlation with oil makes these ETFs a nice play. And Clean Tech is more than a "concept". You suggest it only merits attention when oil is high, and that certainly is what draws trader interest. It's not an asset class per se, but the industry has legs and is gaining scale, and coupled with incentives and evolving policy, make it worth a look regardless of the price of oil.

2007 Feb 10 10:58 AM

[Javaharv:]

Roger, I am a fan. I have many years experience and am a financial advisor, and I have enjoyed your usually very sound information. One comment about PZD. If it is what its name implies, regardless of the price of oil, which historical has put the kibosh on alternative energy investments, it should hold up well considering the big push to deduce CO2 emissions. What do you think?

2007 Feb 11 07:52 AM

[Roger Nusbaum:]

intuitively sure but for your comment to come true you have to assume that the market will see it that way too. great things could be happen but if oil stays at pick a number the market may never care.

2007 Feb 11 02:10 PM