PowerShares WilderHill Clean Energy ETF (PBW)
PowerShares Global Clean Energy Portfolio (PBD)
The WilderHill Clean Energy ETF (PBW) was the first clean energy ETF - as the first mover, it's the most well known and widely invested in ETF, but its share price rose only 30% in 2009.
PBW invests across the spectrum of clean energy companies that trade on US exchanges, while its sister ETF - Powershares Global Clean Energy Portfolio (PBD) - invests globally. PBD rose 39% in 2009. Both ETFs reached record highs in 2007 and then dropped about 60% in the 2008 crash.
And both ETFs fell prey to shifting investor preferences in 2009. During the 2008 crash, clean energy stocks suffered as nervous investors shied away from young, high-growth stocks in capital-hungry sectors. Confidence recovered in 2009, but investors steered clear of many solar stocks because of concerns about over-supply and the steep drop in prices. Wind stocks did somewhat better, but also lagged because of their exposure to the credit crunch.
In 2009, the outperforming clean energy subsectors were energy storage (batteries, electric cars) and smart grid, which were new areas for significant government support. In a year when government stimulus programs were the backbone of the economy, that's where the investors were.
Thus, the clean energy sector as a whole - unlike previous years - didn't move as one unit. The industry's subsectors are becoming substantial and deep, and we expect greater variability between them going forward.
Taking PBD as an example, Energy Storage stocks were the stars, rising 120% on average in 2009. BYD Company (a Warren Buffet investment on the Hong Kong exchange), which makes batteries and electric cars, soared 439%, and ultracapacitor manufacturer Maxwell Technologies advanced 252%.
Energy efficiency/smart grid stocks rose 48%, led by Taiwan-based Epistar with a 315% gain, and US companies EnerNOC and Cree, which rose 308% and 255% respectively.
Solar stocks gained 30% on average even though the group contained the index's five worst performers: US-based Energy Conversion Devices fell 58.1% and Germany's Q-Cells fell 54.3%. Wind stocks gained 36% on average.
Thus, PBD lost out on investors' shift toward energy storage and efficiency stocks because the index is heavily weighted toward solar and wind: it contains 9 energy storage stocks, 17 energy efficiency stocks, 25 solar stocks and 18 wind stocks.
Four stocks were added in the quarterly index reshuffle, including newly listed energy storage firm A123 Systems and wind project developer China Longyuan Power. Among the five stocks that were dropped were Evergreen Solar and troubled wind developer Theolia.
Don't count these ETFs out going forward however - 2010 could be a banner year for clean energy companies in general, including solar and wind. The top 10 holdings are quite different between PBW and PBD, but both include compelling companies across all the clean energies - American Superconductor, Cree, Trina Solar, Ormat, Itron - all stocks on our "short list" and poised for strong performance in 2010.
Major economies pledged about $200 billion in clean energy stimulus funds, much of which will hit company coffers in 2010 and 2011. Those that gain the most will drive share price performance in the months ahead.
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