Author: Clark Gates, Craigmillar
Disclaimer: Clark owns WFR, TAN and SPWRA in his Covestor Global Clean Energy-Clean Tech model.
October 15, 2010: Although the model was just recently launched (inception date of August 25, 2010), the Craigmillar Global Clean Energy-Clean Tech strategy has five years of live performance and is benchmarked to the WilderHill Clean Energy Index (ECO-P). The ECO-P index also has an ETF attached with the symbol PBW and has been trading in the open market since the 3rd Quarter 2004. Both portfolios focus on the long-term trends of renewable energy, power delivery, energy storage, energy conservation and clean fuels all of which lead to energy decarbonization.
For the month of September, the model was up 10.67% and is up 13.39% since inception.
The model uses long-term energy evolution as a catalyst for selecting stocks. Decarbonization, using energy with less carbon, is the basis of our investment approach that has produced competitive returns. This energy trend has improved productivity/profit and is addressed in the “Sixth Revolution” called The Age of Cleantech and Biotech by a Merrill Lynch associate, research analyst Steven Milunovich, CFA. This revolution follows five other revolutions (as described by Carlota Perez) since 1771 beginning with the first revolution of mechanized cotton and wrought iron called the Industrial Revolution. The following four revolutions include steam, steel, synthetics and software leading up to the current “Sixth Revolution” primarily made up mostly of alternative energy technologies.
The “Sixth Revolution”, beginning in 2003, involves energy production from renewable sources as well as energy efficiency in storage and usage. The biotech aspect is with the development of nano materials, engineering enzymes, and synthetic biology. Basically these “Revolutions” last around 50 years so we are still early in the “Sixth Revolution”. Historically, the early part usually produces the best investment rewards. We could be looking at acceleration currently following our recent financing issues. The main technical issue is energy storage and the remainder is matter of physics. Electronic pathways are becoming smaller, more powerful and less expensive as can be seen today in LED technology for lighting. It is also possible that our storage time could be reduced as multiple energy sources connect. This connection reduces the variable supply/demand metric such that flywheels and supercapacitors could fill the smaller gaps of minutes…not hours. Batteries will bridge this gap until then. To date, this “Sixth Revolution” has not produced much in publicity.
Prior “revolutions” were partially helped by governments, especially early on in the semiconductor industry during the Fifth Revolution (Information Technology). It took the computer industry many years to get going having started in the 1950s during Kennedy’s time of space exploration, civil rights and the environment. The microprocessor wasn’t even used until 1971. The Fifth Revolution was largely a US phenomenon while energy technology is global according to Mr. Milunovich. He also comments that energy technology is likely to be more important to less mature countries with pressing energy needs. Even Europe does not have the natural resources of the US and therefore will be more likely to advance energy technology. This is why the model is basically global even though we measure their performance versus US indices. The Sixth Revolution may be more global than the previous five.
Just recently China’s state-owned China Development Bank Corp. struck a five-year financing agreement with LDK Solar Co. (LDK) to borrow up to $8.9 billion to produce solar wafers and modules. The company saw sales surge in the most recent quarter and is expecting sharp growth in 2010. This positive report has led most other solar module manufacturer stocks to also increase in value. Some of these stocks are held in the model, such as SunPower (SPWRA), MEMC (WFR) and a solar ETF (TAN). The global nature of the “Sixth Revolution” could possibly lead to profits not just generated in the United States but across all borders.
