In 2009, investors didn't have to be great stock pickers to see their stocks rise, but some sectors (and stocks) performed much better than others.
Although clean energy stocks rose about 40%, that only reversed about a third of the losses from 2008. Energy efficiency, grid and energy storage stocks were the place to be, pre-empting more "traditional" clean energy solar and wind stocks.
2009 winners had spectacular share price performance, including:
LED Lighting: Cree (255%) and Dialight (100%)
Smart Grid: EnerNOC (308%); Comverge (128.6%)
Energy Efficiency: Johnson Controls (64.64%); Baldor Electric (57%)
Energy Storage: BYD Company (439%); Maxwell Technologies (252%).
Geothermal Heat Pumps: LSB Industries (69.9%); WaterFurnace (60.22%)
Let's look at the green stock landscape through some of the leading green Exchange Traded Funds (ETFs).
When we look at the performance of green ETFs in 2009, most rose 30-40%, easily beating the S&P at 28.8%, but underperforming the Nasdaq at 43.9% and a multitude of individual stocks. Still, ETFs are a great, inexpensive place to invest for those hesitant to pick stocks.
For investors not very familiar with the advantages of ETFs, they have the compelling advantages of being convenient, low cost, diversified, transparent and liquid investment vehicles. Over the past 10 years ETFs have grown from 30 funds with $1 billion in assets to well over 800 funds with over $500 billion in assets.
Convenience, Cost, Diversification: When you buy an ETF, you're buying a basket of stocks that fit a theme (an index) - pretty much any theme you can imagine is available, but in the green world themes include large cap world leaders, clean energy, cleantech, or smaller niches - solar, wind or water.
The theme gives you diversification within the specific area the ETF focuses on. ETFs contain many of the stocks in a given sector, so some stocks will outperform and others will underperform. If you're a good stock picker, you'll usually do better buying individual stocks.
But if you're not a stock picker, ETFs have advantages over buying mutual funds: they cost about half and you can buy or sell them just like stocks - trade anytime, use limits and stop orders, shorts etc. ETFs are not managed actively however, so well-managed mutual funds may have an advantage in terms of performance if they pick great stocks. The average stock in an ETF represents a small fraction of the fund's assets, typically 3-4%.
Transparency, liquidity: since ETFs track indexes, you'll never wonder what an ETF invests in, because all the constituents are transparent, unlike mutual funds, which follow the whims of portfolio managers. The liquidity of an ETF is related to that of the stocks in the index, rather than its daily trading volume, and ETFs usually have small spreads (generally under 1%) because market makers, specialists and arbitrageurs compete to effectively flatten the premiums and discounts to fair market value.
International reach: one of the challenges in green investing is the international nature of the space - there are important companies in China, Europe and much of the world now, many of which only trade on their home exchanges. Global ETFs make it easy to invest in companies around the world all in one portfolio.
