Tom Konrad CFA
Cherry picking the holdings of green energy mutual funds.
So far in this series I’ve concentrated on trying to pick the best of the Alternative Energy and Climate Change Mutual Funds. This is a difficult task, because while I found in Part III that most of the funds’ performance has been better than comparable index ETFs, these mutual funds’ costs are quite high, even by the standards of most mutual funds, as I discussed in Part I. In part II, I tried looking at the sector breakdown of the funds’ holdings, to see if I could explain some of their performance that way. It turns out that funds that buy the most solar stocks have underperformed in the past.
The underperfomance of solar-heavy funds confirms one of the principles of alternative energy sector selection that arise from common misunderstandings about how Alternative will re-shape our economy. I went into them in more detail in part II, but in short they are:
- Underweight Solar
- Overweight biomass producers compared to their customers, biofuel producers.
- Focus on Energy Efficiency and Conservation.
- Invest in the Electric Grid.
- Favor Alternative Transport over the personal car.
What follows is my attempt to build a portfolio from the stocks owned by these mutual funds, but conforming to the principles above.
Fund Holdings: Solar Stocks
Many of the funds own large quantities of First Solar Inc (FSLR), SMA Solar Technology (S92.DE), MEMC Electronic Materials (WFR), and JA Solar Holdings (JASO). First Solar is the largest holding of these mutual funds overall, accounting for 6.6% of the Winslow Green Growth Fund (WGGFX). Overall, the average fund is about 24% allocated to solar, something I hope to improve on by leaving them out of the portfolio I’m building.
Fund Holdings: Biomass
By far the largest holding biomass holding in these companies is Sino-Forest Corp. (TRE.TO), a commercial forest plantation operator in China. The second largest holding is Deltic Timber Corp. (DEL), but it’s only held by one fund, the DWS Climate Change Fund Class S (WRMSX). I’m looking for stocks held by at least two funds for this portfolio.
Fund Holdings: Energy Efficiency and Conservation
The top energy efficiency holding is also my personal favorite, Waterfurance Renewable Energy (WFI.TO), a manufacturer of Geothermal Heat Pumps. Also held in quantity are Rubicon Technology (RBCN), which sells mono-crystalline sapphire and other crystals to the Light Emitting Diode (LED) industry, and LED industry leader Cree Inc (CREE). In conservation, we have water system repair firm Pure Technologies Ltd. (PUR.V).
Fund Holdings: Electric Grid
The top electric grid holdings were meter-maker Itron (ITRI), and transmission contractor Quanta Services Inc (PWR), both of which I’ve written about in these pages.
Fund Holdings: Alternative Transport
These funds are more focused on Climate Change than peak oil, so alternative transport stocks are few and far between, but one that’s owned by three funds is Smart Grid and Smart Transport stock Telvent Git S.A. (TLVT). In order to get a little more representation in this sector, I’m also going to include rail supply company Wabtec Corporation (WAB), even though it’s owned by only one fund, WGGFX.
Green Energy Portfolio
This is my suggestion of a portfolio, which should perform better than most of the green energy mutual funds because of better sector selection and lower costs: TRE.TO, WFI.TO, RBCN, CREE, PUR.V, ITRI, PWR, TLVT, and WAB, equally weighted. That’s 11% Biomass, 45% Efficiency and Conservation, 27% Electric Grid, and 17% Alternative Transportation. It’s not representative of the market, but we’re trying to beat the market here, not just match it.
I’ll take a look back at this portfolio next year to document how it has performed relative to the mutual funds.
DISCLOSURE: Long PUR.V, WFI.TO, PWR.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
