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green@work
: Magazine : Back
Issues : March/April
2006 :
Green Investments
Green
Investments
Indexing Environmentalism
The WilderHill New Energy Global Innovation Index tracks clean energy companies
internationally, while the Cleantech Index tracks companies
in the United States.
by william baue.
by william baue
America is addicted to oil,” said President George W. Bush in a recent
State of the Union address. “The best way to break this addiction is
through technology,” he added by way of introducing the Advanced Energy
Initiative—a 22-percent increase in clean-energy research on “zero-emission
coal-fired plants, revolutionary solar and wind technologies, and clean, safe
nuclear energy.” In the weeks before and since this speech, two new
indexes have launched through the American Stock Exchange that advance elements
of this agenda in the investment marketplace.
The WilderHill New Energy Global Innovation Index (NEX), which seeks to be “the
purest and most authoritative benchmark for the development of the clean energy
industry worldwide,” tracks 86 clean energy companies trading on 18 markets
globally. The Cleantech Index tracks 75 U.S. companies with majority involvement
in “cleantech,” defined as “any knowledge-based product or
service that improves operational performance, productivity or efficiency while
reducing costs, inputs, energy consumption, waste or pollution.”
“What we are seeing is that mainstream investor interest in the energy
side of sustainability has really rocketed in the past 24 months, starting with
CalPERS/CalSTRS Green Wave Initiative, then with Goldman Sachs investments in
Zilkha Renewables and Nordex, GE’s Ecomagination, BP’s Alternative
Energy initiative, and now the President’s State of the Union speech,” said
Michael Liebreich, CEO of New Energy Finance, co-publisher of the NEX index. “The
interest in clean energy is driven not just by sustainability issues and the
Kyoto Protocol, but also by oil depletion and energy security concerns, and our
impression is that it is far outstripping interest in other areas of cleantech.
“That said, we see the debate as being far more about clean vs. conventional
energy, rather than clean energy vs. cleantech,” Liebreich told SocialFunds.com.
Indeed, the clean energy and cleantech indexes are distinct enough as to be complementary.
“They track somewhat differently, as the global focus of NEX nicely allows
for non-correlation with U.S. indexes such as the Cleantech Index,” said
Rob Wilder, founding CEO of WilderShares, the other co-publisher of the NEX index. “The
Cleantech Index also offers exposure to areas like water that aren’t covered
in the NEX alone.”
The non-correlation with U.S. indexes also distinguishes NEX from its precursor,
the WilderHill Clean Energy Index (ECO), launched in August 2004.
“There are aspects sizably represented within NEX, like wind power, that
are less weighty in ECO—in part because many wind power companies are based
in Europe, Asia and elsewhere outside the U.S.,” Wilder told SocialFunds.com.
Elias Azrak, co-founder of the ECO index and also of CleanTech Capital Indices
which publishes the Cleantech Index, points out that constituents in ECO and
the Cleantech Index overlap only by about 20 percent—NEX and the Cleantech
Index overlap even less.
“I do not think NEX and the Cleantech Index are competing with each other,
but by launching more products we are helping to develop liquidity and attract
more capital to the environmental sectors, which is the name of the game,” Azrak
told SocialFunds.com.
PowerShares Clean Energy, an exchange traded fund (ETF) tracking the ECO index
that launched in March 2005, has more than $310 million in assets under management.
PowerShares Water Resources, an ETF tracking the Palisades Water Index that Azrak
helped launch in December, has more than doubled assets from $138 million by
the end of last year to more than $370 million now.
Mr. Liebreich of New Energy Finance places the growth of ERI in a broader context.
“In all of our research at New Energy Finance we are trying to define a
new asset class for investors—in other words, a group of investments that
is subject to one defined set of drivers, that exhibits non-correlated behavior
vis-a-vis other asset classes,” he said. “What we have seen from
the back-testing of the NEX is that we have been able to identify a group of
publicly quoted companies for which this holds.”
Three-year annualized returns for NEX would have been 29.27 percent, slightly
underpacing the Amex Oil index (30.23 percent), but outstripping the S&P
500 Energy index (26.73 percent), the NASDAQ 100 (18.67 percent) and the S&P
500 (12.37 percent.) Preliminary results of backtesting for the Cleantech Index
show three-year annualized returns of 30.75 percent.
“It is clear that a professional investor who had previously been investing
in the energy sector, whether utilities, oil and gas, or both, would have enhanced
returns and/or reduced risk by investing against the NEX,” said Liebreich. “That
is very, very significant, because it can unlock far more investment volume into
the sector than just retail flows from the concerned wealthy.”
Investable products are in the works for both NEX and the Cleantech Index.
“We’ve just signed with PowerShares to offer an ETF for NEX in the
US, following a registration process,” said Wilder. “But we also
expect to offer other products outside of the U.S. based on the NEX Index, and
welcome inquiries about that.”
“We have received interest from several institutions about the possibility
of launching products that will track the Cleantech Index,” said Azrak. “While
these are not necessarily ETFs, obviously we are also interested in having an
ETF, and will be talking about it with the usual suspects.”
This article originally appeared on www.SocialFunds.com, the largest personal
finance site devoted to socially responsible investing. William Baue works with
SRI World Group, Inc., the publisher of www.SocialFunds.com |
