January 14, 2010 – United Nations Headquarters, NY - global financial leaders gathered to address climate risk concerns and how they impact current and future investing decisions. Co-hosts, Ceres has produced a final report on the summit that does a great job of summarizing the elements that were discussed during the conference. Click here to view the report.
As it’s Earth Day, it only seems fitting to review investment opportunities that can positively impact a cleaner, greener future for the planet, our children and environment we share. One such area that is seeing an explosion of funds focusing on this space is the ETF (Exchange Traded Fund) landscape. This area has held up extremely well during these tough economic times and has seen solid investment inflows to green and clean technology companies. In fact, during 2009 this sector was the only private equity industry that showed a net gain in flows over previous annual numbers, and in terms of total investment clean energy has increased by 230% to $162 billion in 2009 over 2005 figures. Part of the appeal is that there is such enormous opportunity in so many different areas. Could this be a repeat of the .com boom of the 90s and early millennium?
A significant difference from the tech decade, however, is that while many of those start-ups were founded on ground breaking technologies, there is more stability within the world of alternative energy. For one, it is not just start-ups that are pushing the advancement forward. Large and established companies that have worked in the power industry for decades are recognizing the need to diversify their operations to keep up with the inevitable switch to more sustainable fuel and energy sources. A good example of this has been in the Natural Gas industry. No matter what your opinion on the fuel as a possible intermediate, cheaper, lower emission substitute (see earlier post), the recent acquisition of a number of natural gas producers by giant oil companies has clearly shown they will not allow the investment opportunity to pass and at worst will make a very safe hedge to their existing operations. Other firms focused on infrastructure and power delivery see opportunity in improving efficiencies within the distribution markets, not only at the corporate level, but within households and through smart grid system technology.
With so many different ways (and different scales) to invest, it only makes sense that investment vehicles are growing in number to support the demand and variety of nuances within the marketplace.
Outlined below is a summary of the current key funds in the ETF world and the areas they focus on.
As developed global markets struggle to extract themselves from the ‘great recession’, investor attention is often directed to other parts of the global economy in an effort to find other opportunities. A good amount of that focus has landed squarely on the shoulders of Brazil, and, to a lesser extent, Chile, with good reason. There is much to like about both these economies. In fact each puts some developed nations to shame when it comes to their robust fiscal, economic regulations and well managed growth over the last few years. In this multi-part series we will take a look at both separately to see what makes them an appealing investment opportunity for those that are willing to take on some risk.
Brazil has the largest economy in South America and ranks as the world’s fifth most populous country and tenth largest economy. It is uniquely situated in that it shares borders with every country in South America with the exception of Chile and Ecuador. The country has rebounded strongly since the economic problems of 2007, driven by domestic demand as rising incomes create a growing, increasingly consumer-oriented middle class . Brazil is also seeing greater freedom in its export policy, which has led to strong ties with China. In fact, China surpassed the US in 2009 as the largest trading partner. While many assume that trade must be one of the biggest drivers of the economy, it actually only represents a small part of Brazil’s GDP and these exports are further diversified geographically with a low dependence on external financing and reserve accumulation. Incredibly, this has led to Brazil’s international reserves being able to cover the country’s sovereign and private external debt obligations. Read more…
Click here to read the full interview on Seeking Alpha
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.
Disclosure: Caledonia and/or its principals currently hold(s) position(s) in TBT
Senator Timothy Wirth addresses delegates
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.
Download the Investor Statement on Catalyzing Investment in a Low-Carbon Economy.
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…
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…
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.
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:
