Tom Konrad on Alternative Energy ETFs

by Murray Coleman

Tom Konrad is one of the investment community's most well-known observers of renewable energy markets. He's a prolific writer and his latest work can be found at Alternative Energy Stocks.com. With a Ph.D. in mathematics, Konrad brings an academic's mind to the sometimes hype-filled alternative energy space. The Denver-based researcher isn't trying to be the next hot stock guru."I get a large number of emails asking ‘What do you think of Company X?' Unlike Jim Cramer, I don't have a lot to say about companies I have not been following ..." he explains in a recent blog post. Konrad also has studied mutual funds compared to exchange-traded funds covering the alternative energy universe. He likes ETFs right now. But he's an analyst with a keen eye of how different investing styles can best take advantage of stocks, mutual funds and ETFs. HardAssetsInvestor.com (HAI): There are now ETFs which allow investors to fine-tune their alt energy exposure to particular markets. Is that an approach that makes sense, or is that getting too narrow? Tom Konrad (Konrad): For some traders who really like to time the market, it can be quite useful. Other than that, you're starting to get down to pretty narrow industries. With solar, you can just buy individual stocks. There's not much advantage to the ETFs at this point. A few companies make up a large part of their portfolios. So these are very, very focused types of portfolios. It raises the question: Why not just invest in particular companies through individual stocks? But again, as a market-timing instrument, these sorts of narrowly focused ETFs might work. For example, if you have a good feeling for when Congress might extend the investment tax credits - or even if you think they're not going to be - ETFs might be a way to take advantage of those short-term expectations.   HAI: Does an index-based approach make sense in the alternative energy space, or is there room for an active manager to add value? Konrad: There's definitely room for active management. The alternative energy space is still very young and the analyst coverage is pretty lean. There's a lot of market inefficiencies left to take advantage of at this point. Those opportunities will be less as time goes on, but right now, alternative energy is the place to be for active managers. HAI: Which presidential candidate would be better for alternative energy stocks? Konrad: Barack Obama, by a long shot. He gets alternative energy. He didn't originally; he had an early misstep. Obama supported the conversion of coal to liquids, which is environmentally a horrible idea. It's a viable replacement for petroleum in the sense it could work, up to a point. But there are other processes that are just as viable and less environmentally damaging. Obama was called out by the environmental community and he learned from that mistake. He's really the only [current] candidate for president who has gotten into the subtleties of the issue. John McCain hasn't really addressed the issue. He has a policy, but not nearly one that's as in-depth and focused as Obama's on the prevailing issues. We're talking worlds of difference between Obama's understanding of the issues and that of McCain's camp. HAI: Is ethanol doomed by high corn prices? Konrad: No, ethanol and corn prices are moving in sync with oil. There will always be arbitrage opportunities. But it's never going to be a gold mine. An efficient producer of ethanol will be able to, on average, create a small return on investment. It's not the greatest opportunity out there and never has been. That's what the current correction is all about - people thought it was and overplayed that market. But ethanol is here to stay because of legislative activity in the area. HAI: If you had to put your money on one stock in the alternative energy space, what would it be? Konrad: New Flyer Industries. They're the largest North American manufacturer of buses. And I consider mass transportation to be the only viable way to address the high oil price situation. It's the only answer with enough scale to truly address the problem in a timely manner. New Flyer Industries is the dominant manufacturer of buses. And buses are the types of mass transit which are the quickest to deploy. They've got a very strong and growing order book. And I think it's just the beginning of the story for this company.

Comments

[mthomas:]

What if there was a technology that could save the Planet ? Produce water and energy in abundance.

Cheaply, reliably, and forever renewable.

www.p2pnet.net/story/1...

Regards,

Michael

2008 Jul 28 12:47 PM

[Universal H...:]

Mr. Konrad, I enjoy your articles, and as the old ad slogan goes "when you speak, I listen". But for you to suggest that Mr. Obama would be the best Presidential Candidate for alternative energy stocks is almost ludicrous.

Barack Obama may understand the issue of alternative energy, but he does not understand capitalism, economics, and the market forces which will be necessary to make a transformation from fossil fuels to renewable fuels possible in the US. Obama will raise capital gains taxes, depressing the entire market including much needed investment in alternative energy. Obama will raise corporate income taxes, forcing companies to reduce R & D, reduce hiring, and possibly even push some of our brightest minds (and the venture capitalists who fund them) outside our borders to set up shop in more "business friendly" nations. And, Obama will raise personal income taxes, further reducing the amount of free capital available to invest in innovation, manufacture and job creation within the alternative energy sector.

Somewhere within the range of 50-100 years we will be a very "green" and "renewable" and "alternative" energy nation. (We still have some major hurdles, not the least of which is to find economically viable replacements for plastic, styrofoam, vinyl, and other petroleum distillate products- like the one you're all staring at right now!) We all want alternative energy, we all "get it". The question is: Will America lead the way? Like we did with the incandescent lightbulb, the automobile, the telephone, the personal computer, and dozens of other innovations we introduced to the world? Or, will we just copy or buy the technology from other nations? Barack Obama understands the problem, but does he understand that the solution is to release the forces of capitalism and freedom?

2008 Jul 29 04:58 PM

[Osya:]

Obama will be the next Bill Clinton and America will have a "Green Revolution" ... just like it had Industrial Revolution... Internet Revolution etc..... We really need something new to create jobs and wealth

2008 Jul 29 08:28 PM

[User 210954:]

Murray- Thanks for the good write-up.

In response to some of the comments above (if you feel the need to continue the conversation, please come to my blog... I don't expect to return to this article to see future comments)

mthomas- you're living in a fantasy land. I didn't follow your link, but it sounds like another version of a perpetual motion machine. Something for nothing does not exist: this is physics.

Enfant- Neither McCain nor Obama understand capital markets or business, and both admit it. I trust that they will be able to find advisors who do. Obama, has said that Energy will be a high priority for him while he is in the White House. McCain does not consider it a priority.

2008 Aug 01 12:54 PM

[Tom Konrad:]

BTW, User 210954 was me... problems logging in.

2008 Aug 01 12:58 PM