Follow the Smart Money: Green!

Friday, June 26, 2009

Where is smart money heading as the market turns? A large amount of capital is racing to the clean energy sector as investors see a new wave of innovation and the possibility of explosive growth. The path to a sustainable energy strategy is likely transformational to the world economy. The transition from a carbon-based energy economy to one of alternatives seems inevitable and only a matter of time. The difficultly lies in entering the field at the right time so as not to be too early or too late to the upcoming wave. Yet, the tide seems to be incoming. Where should recent graduates look for employment? Green technology!

Instituations see major growth in the clean energy sector over the coming years. The Obama administration appears to be committed to implementing a clean energy investment plan. To achieve his administration's goal of generating 25% of energy from renewable sources by 2025, they will be making unprecedented investments in renewable energies. While expectations have been reduced with the current economic downturn, 75% of institutional investors see increased investment over the next 3 years.

The world has seen rapid growth in clean energy investment over the past 5 years. 2008 was the first year of less than 50% growth registering a mild 5% growth in investment as a result of the global economic downturn. A total of 10% of global energy infrastructure spending is allocated to clean energy. The maintaining of a positive growth rate in investment through this recession is relatively impressive confirming the high probability of greater investment down the road.

Investors can benefit from this wave by establishing a position in the PowerShares Global Clean Energy Portfolio (PBD). The PBD tracks the WilderHill New Energy Global Index (NEX) which is comprised of 85 clean energy companies listed on 24 exchanges in 21 countries around the world. The fund focuses on companies "whose innovative technologies and services focus on the generation and use of cleaner energy, conservation, efficiency and the advancement of renewable energy in general". The Index has 30% weightings in both wind and solar with smaller weightings in energy efficiency, biofuels & biomass, other renewables, power storage and energy conversion. The NEX is determined by a group of 45 industry analysts working for the industry-leading New Energy Finance.

Major stock market downturns typically cause the greatest pain to the most speculative stocks. These large declines in price are great buying opportunities prior to a revival in economic growth and a stock market turnaround. The PBD is already up 19% year-to-date outpacing the S&P 500 by over 17%. Investors see large growth in this sector and are snatching up shares in anticipation. An investment in a broad, diversified sector fund may see market-beating capital appreciation over the long-term.


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