PowerShares Progressive Transport: Portfolio Diversification for Green Investors

 |  Includes: ENB, HEV, ISHC, KEX, NSC, QTWW, WPRT
by: Don Dion

As oil prices put a strain on consumers, PowerShares announced the debut of its Global Progressive Transportation (PTRP), set for September 18. PTRP represents PowerShares’ response to a cost-conscious, environmentally aware set of investors, with a focus on companies that pledge to improve the energy efficiency of global transportation. With many investors reeling from financial sector woes, PTRP provides a fresh look at companies that could shape global economies in future months.

A wide range of factors pushed oil to record highs in 2008—subsequently causing investors to seek energy alternatives. Even though the price of oil has receded in recent weeks, summer’s record highs have helped to raise investor awareness about energy alternatives. With the election hovering on the horizon, energy and fuel costs permeate national debate, and “green” energy solutions gain traction across America.

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PTRP stands to benefit from a shift toward cleaner forms of transportation by tracking the Wilder NASDAQ OMX Global Energy Efficient Transport Index. This index is composed of companies that would prosper from a substantial shift toward cleaner, less costly and more fuel-efficient transportation. The underlying index comprises approximately 50 companies across the globe.

PTRP seeks companies that fit two primary criteria: first, that their technology is designed to improve fuel efficiency, and second, that the companies reduce costs for fuel or time in transit. While a broad range of technologies could fit this bill, PowerShares suggests that the index seeks green renewable energy harvesting or production, energy conversion, energy storage, improvements in efficiency, power delivery, energy conservation, and monitoring of energy information.

In addition to covering a wide range of initiatives, PTRP’s holdings also encompass a broad swath of the global economy. The largest country allocation in the fund is the United States—at 42.18% of assets—with Canada, Taiwan, Japan, Italy, Germany, France, Chile, Mexico and Scotland rounding out the top 10. PowerShares notes that transportation is “the fastest growing sector for greenhouse gas production in the U.S.,” a concern that has been echoed by booming economies abroad.*

Clean energy initiatives, such as T. Boone Pickens’ wind energy proposition, have increased public awareness on a national scale, and other countries have also begun their own clean energy efforts. Canada, PTRP’s second-largest country allocation, announced a $10 million program to support sustainable energy transportation choices in 2007. Additionally, China—one of the fastest-growing global economies—is currently working with the U.S. National Resources Defense Council to promote fuel-cell and hybrid vehicles and smart growth.

While PTRP’s top country allocation is decidedly the United States, the index does not currently place more than 3% in any single equity. The top nine components in the index make up 2.78% of the fund, while allocations 10 through 18 make up another 2.67%. Although 61% of PTRP’s holdings are classified as small cap, this diversification helps to mitigate the risk of downturn by any one particular company.

Quantum Fuel Systems (NASDAQ:QTWW), one of the largest components in PTRP’s portfolio, announced Monday that it had partnered with Korean firm Q Tech/Yongsan Inc. to build a solar module plant in South Korea. The signing of this new deal—expected to aid Quantum’s alternative vehicle efforts—is projected to produce more than $100 million in annual sales. This collaboration could bolster PTRP’s aims—and share price—in the future.

Robert Wilder, the CEO behind PTRP’s index creator, WilderShares, acknowledges that prospective deals and tomorrow’s technology could scare off wary buyers. Therefore, Wilder notes that most of the index comprises transportation types “that are simply more efficient to begin with.” Included in this efficient pool are scooters, bicycles, subway trains and passenger trains. On its website, PowerShares notes that Amtrak, which provides intercity railway transportation, is more energy efficient than automobile and airline travel by 21% and 17%, respectively.

In its article released September 11, Greentech Media noted that some green investors will undoubtedly question whether railroads are an environmentally friendly addition to the index. Wilder responded by noting that railways are the “most energy-efficient way to move something from point A to point B” and that a green transportation index that doesn’t include rail would “raise eyebrows.” Wilder’s hope is that the index will be able to include the “greenest of the railroads” in the future, as more companies fit PTRP’s capitalization requirements—$200 million—and are eligible for inclusion.

Since PTRP’s release coincides with our press date, we do not currently track PTRP in our PowerShares Momentum Tracker rankings. However, we will continue to follow this ETF and other green ETFs entering the marketplace. Currently, we hold in our model PowerShares Water Resources—an ETF that tracks companies that focus on the provision of potable drinking water.

While investing in a specific sector such as transportation is a riskier bet than most, the breadth of objectives and geography in PTRP will help to decrease investors’ exposure to industry developments. As currencies experience volatile valuations and market events worldwide become increasingly correlated, a global fund like PTRP could provide portfolio diversification for green investors.