SeekIng Alpha (SA): In your portfolios currently, how are you allocating among different asset classes?
David McMillan (DM): At the beginning of 2009 our biggest concerns came from a number of directions. We wanted to ensure that if the declines of the previous year continued we would be protected on the downside from further drops in portfolio values. We also needed to ensure that if we saw a dramatic recovery we could participate and generate respectable returns. It was the classic problem of trying to have low risk with solid growth, and in one of the most challenging economic periods of our time. As active managers, it wasn’t enough for us to sit on the sidelines and hope that a recovery would erase some of the losses that 2008 delivered. This led to holding a diverse mix, heavily weighted in fixed income investing, including treasuries, inflation protected bonds, corporate bonds, international bond funds, high yield bonds, commodities, and limited number of domestic and international equities (particularly in the green and clean technology areas). This saw us outperform our market benchmarks with lower risk levels. We had seen numerous opportunities within the fixed income space, and they didn’t fail to deliver. Even the higher risk fixed income investments were more attractive than most equity positions from a risk-return standpoint.
On January 14th, Caledonia was proud to be part of a watershed moment in New York at the United Nations headquarters, where institutional investment leaders were present to construct a unified approach to the importance of a low carbon economy within the industry. Investor groups representing $13 trillion called on US Congress and other global decision makers to “take rapid action” on carbon emission limits, energy efficiency, renewable energy, financing mechanisms and other policies that will accelerate clean energy investment and job creation.
Watch the video below for a summary of the summit.
With 2010 now officially upon us, we turn our attention to what the rest of the year has in store for us. The investment world has been full of surprises over the past 12 months and it will be interesting to see how things unfold over the remainder of the year. One thing can be certain, this will be no ordinary year, and it is our bet that we will see the making of some dramatic economic shifts that will require very careful planning to avoid significant portfolio shocks. Here is the rundown of some of the key areas we will be watching closely.
Interest rate hike:
While there is still a lot of debate (and outright arguing) by the deflation vs inflation camps, it seems that we are seeing more of a swing toward at least one interest rate raise coming during 2010. The overzealous stock market recovery, a likely (though small) improvement in unemployment numbers, commodity appreciation and a very real need for the government to inflate its way out of the enormous debt burden will all be drivers.
For reference, here is a chart that shows the historical Fed Funds rate since the 1950s and how infrequent the periods of ultra low effective rates are. Read more…
A standard incandescent bulb will use almost five times the energy of an LED bulb, a German study concludes. On its face this hardly seems significant since it’s well known that an LED is about five times as efficient as an incandescent bulb from a use standpoint. However this study, conducted by Osram, looks at energy efficiency from a life cycle standpoint. This is important since it refutes the notion that the efficiency of LED bulbs is compromised by an energy intensive production process. In fact, the study finds that the primary energy used in the manufacture in an LED is less than 2% of the total energy consumed over the life of the bulb. Compelling stuff. Even mainstream media such as the NYT has been quick to publish the results.
However a closer examination of the study is revealing. While 2% may sound impressive and further the study highlights how the energy consumed in manufacture is actually less than that of an incandescent, it’s important to understand the assumptions. While it may be true to say an LED is 35% more efficient to manufacture than an incandescent, this calculation is based upon a 25,000 hour versus a 1,000 hour expected life. That a factor of 25.
ETF’s continue to be an investing favorite due to their simplicity, transparency, intra-day pricing and trading, low cost and tax efficient structure. In the past, we have often been in the position where we have had to fill allocation gaps with other investment vehicles as the ETF landscape was not yet complete in its coverage of every sector. With so many options now available, it is becoming easier and easier to get the coverage you need for a well rounded portfolio.
One such example was in the world of international fixed income, particularly at the government bond level. Domestically, there are a number of fund choices out there that cover the full spectrum of fixed income options such as treasuries, municipal and corporate bonds, high yield bonds etc. Exposure internationally has been much more limited, particularly for government rated bonds, a great shame given the yields that some governments are offering on relatively high quality bonds. Finding a safe haven in the US has been easy, but with yields of treasuries sitting at such low levels, such as the 5 year paying a 2.1% coupon, the gains are very limited. Compare that to an Australian government 5 year bond offering 6.2% coupon and the rates become much more attractive. Read more…
Global energy is back in the spotlight, with good reason. Next month in Copenhagen, the world’s leaders will meet to discuss steps that can be taken to limit climate change and work toward lower carbon emissions and a more sustainable energy future.
One of the biggest topics of conversation lately has centered around the notion of ‘peak oil’, or the point at which worldwide production of oil could go into terminal decline; by some estimates, this could be as early as 2020, according to UKERC, the UK energy research council.
The debate is hotly contested, with experts on both sides weighing in with supporting data from the energy sector, scientists, and the latest figures from various government agencies. In a recent NY Times article, ‘Peak Oil’ – is a waste of Energy, Michael Lynch debunks the notion there is a crisis looming and largely attributes speculation to people using poor analysis, as well as the mis-interpretation of technical materials. The article outlines the arguments in a well-reasoned way, but goes on to say that the most misleading claim in the peak oil debate is the number of recoverable barrels of oil available. He argues that the real number is closer to 10 trillion barrels vs the 2 trillion previously stated by peak oil advocates. Read more…
The ETF landscape continues to expand. With the recent launch of new products from major players like Charles Schwab to smaller investment firms that specialize in focused industry areas, there is no shortage of choice for the individual investor. While many of these are often a spin on well established domestic/international/bond indexes there is occasionally a fund that comes along that stands apart from the rest of the crowd.
Launched a couple of days ago, First Trust’s/Clean Edge Smart Grid ETF (GRID) fills this criteria. The fund is built around companies that focus primarily on smart grid technology plays and aims to track the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index. This technology covers everything related to networks, energy storage, electric meters, enabling software and other elements involved in the electric infrastructure sector. Read more…
Southwest Airlines (Ticker: LUV) is implementing measures that will not only further its positioning on sustainability but will improve its efficiency and therefore its profitability.
Weight is a critical element in any aircraft and corresponds directly to flight performance, including fuel efficiency. Over the past two years Southwest has been experimenting with a “green plane” where numerous small improvements in the design and materials used in the seats and the cabin have been tested. The result is a lighter aircraft (by about 472 pounds) that burns less fuel (9,500 gallons less fuel per year). Multiply this approach over Southwest’s fleet and the savings really add up.
“Considering that Southwest flies more than 3,300 flights a day an average distance of 635 miles per flight, the savings would be dramatic. Southwest calculated that it could save 90.6 million gallons of fuel and reduce carbon dioxide emissions by 1.9 billion pounds a year.”
Extrapolate those figures to the aviation industry nationwide, fuel consumption could be cut by 760 million gallons and carbon dioxide emissions by 16 billion pounds a year.
It’s easy to be cynical about the aviation industry from a sustainability standpoint. Planes consume lots of fuel and generate large amounts of carbon dioxide. However we at Caledonia are always excited to see sustainability and profitability complement each other. As Southwest claims, it makes good business sense. Expect other carriers to follow.
You keep hearing about the Waxman-Markey climate and energy bill—aka the American Clean Energy and Security Act, ACES, H.R. 2454—but what’s actually in it? Rather than publish the full 946 pages we thought we would provide a summary of the main points.
It’s a long post so you might just want to scroll to the headings that interest you the most.
Renewable electricity standard
The bill creates a renewable electricity standard (RES) that would require large utilities in each state to produce an increasing percentage of their electricity from renewable sources. Qualifying renewable sources are wind, solar, geothermal, biomass, marine and hydrokinetic energy, biogas and biofuels derived exclusively from eligible biomass, landfill gas, wastewater-treatment gas, coal-mine methane, hydropower projects built after 1992, and some waste-to-energy projects.
The RES:
Requires 6 percent of electricity to come from renewables by 2012
Requires 20 percent of electricity to come from renewables by 2020
Up to 5 percent can actually come from efficiency improvements
If a state determines that its utilities cannot meet the target, the efficiency component can be increased to 8 percent and the renewable component decreased to 12 percent
Blog Action Day ‘09 is today October 15th and was created as an annual event that unites the world’s bloggers around an issue of global importance. This year the focus is climate change and it is only appropriate that we provide a post on the topic and join the other 10,000 blogs, 153 countries and over 13million people already contributing. If you have a blog or any social media presence and would like to participate visit Blog Action Day 2009.
With that in mind, you might wonder what this has to do with investing and managing money at Caledonia. Individual and institutional investors need to be concerned about climate change and climate policy as this has a direct impact on the global economy as well as individual assets. As global investors, we manage portfolios that invest in a cross section of assets, companies, sectors and markets. Risks such as climate change that threaten to disrupt the global economy are significant risks that investors have to manage. Beyond the larger issue at play, investments will be affected by regulatory, fiscal and consumer based pressures as the problem worsens and will have implications that affect risk and performance of a wide range of assets. This is why we joined forces with some of the largest financial institutions in the world in signing a 2009 Investor Statement for a Global Agreement on Climate Change. In the next few weeks we will be able to publish the completed document for review. Read more…
Click here to read the full interview on Seeking Alpha
A standard incandescent bulb will use almost five times the energy of an LED bulb, a German 
ETF’s continue to be an investing favorite due to their simplicity, transparency, intra-day pricing and trading, low cost and tax efficient structure. In the past, we have often been in the position where we have had to fill allocation gaps with other investment vehicles as the ETF landscape was not yet complete in its coverage of every sector. With so many options now available, it is becoming easier and easier to get the coverage you need for a well rounded portfolio.
The ETF landscape continues to expand. With the recent launch of new products from major players like Charles Schwab to smaller investment firms that specialize in focused industry areas, there is no shortage of choice for the individual investor. While many of these are often a spin on well established domestic/international/bond indexes there is occasionally a fund that comes along that stands apart from the rest of the crowd.
Southwest Airlines
Blog Action Day ‘09 is today October 15th and was created as an annual event that unites the world’s bloggers around an issue of global importance. This year the focus is climate change and it is only appropriate that we provide a post on the topic and join the other 10,000 blogs, 153 countries and over 13million people already contributing. If you have a blog or any social media presence and would like to participate visit 
