HardAssetsInvestor

Written by Julian Murdoch  |

August 02, 2010

Alt Energy: Win, Lose Or Draw?

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In the wake of the Gulf Coast oil spill, are alternative energy funds finally ready to rise?

 

 

If you want to "green" your portfolio, there are plenty of investment vehicles offering exposure to alternative energy companies. But compared with traditional energy exposure, are they worth it?

Today, let's stick to basics and consider how the various solar, wind and nuclear energy ETFs stack up to the mother of all energy plays: oil. In the wake of the Gulf Coast oil spill, are alternative energy funds poised for a jump?

 

Solar

But first, a caveat. When looking at oil equity ETFs, you can compare how various companies' performance stack up against the price of oil. But that type of comparison isn't possible in the alternative energy universe—there are no wind or solar futures. And while there are uranium futures, the price of uranium has very little do with production of nuclear energy or the construction of new nuclear facilities, which is what an ETF really captures.

Instead, using the theory that as oil prices rise, alternative energy becomes more feasible and attractive as an investment, I'm going to play a little fast and loose and compare apples to oranges; namely, I'll compare various equity-based alternative energy ETFs with iPath's S&P GSCI Crude Oil Total Return ETN (NYSEArca: OIL). 

One of the two major solar ETFs may have the fun name of TAN (Claymore Global Solar ETF), but lately, its returns have been anything but sunny.

 

 

Both TAN and KWT (the Market Vectors Solar Energy ETF) are down over 25 percent, compared with iPath S&P GSCI Crude Oil Total Return ETF OIL's drop of 13.35 percent (which we're using as our general proxy for oil in this survey). But if you look at the shorter term—say, over the month of July—both solar ETFs rose over 20 percent by July 24, while oil remained fairly flat.

 

 

Unfortunately, that increase was short-lived. Earnings for First Solar and MEMC—two of both funds' main holdings—reported on Friday.

First Solar (Nasdaq: FSLR), the top holding for both TAN and KWT, beat its earnings expectations; that should have been good news, but instead, the stock dropped 7.42 percent on the day. Pricing pressures and reductions in governmental subsidies—particularly in solar power giant Germany, which cut solar power subsidies anywhere from 11 to 16 percent—were behind the bearish sentiment.

Meanwhile, chip-maker MEMC (NYSE: WFR), the third-largest holding for KWT and 10^th-largest for TAN, missed its estimate by 3 cents and fell a whopping 15.2 percent.