Author: Clark Gates and Robert Preston of Craigmillar, LLC
Covestor model: Global Clean Energy, Clean Tech
The month of October rebounded from the summer market downdrafts with The Craigmillar Energy Model outperforming both our chosen benchmark, the WilderHillCleanEnergyindex, which was up 11.12% for the month, and the S&P 500 index, up 10.77% in October. Our Covestor model gained 13.58% in October. We continue to outperform our Covestor benchmark – the S&P Global Clean Energy Index – for this year and since inception.
The Craigmillar model and the WilderHill Clean Energy index maintained its standing with the broad markets last month as they both outperformed the S&P 500 index. Stock selection primarily drove the outperformance. General concerns about corporate earnings were somewhat subdued as the third quarter numbers have proven in line with expectations. Overall, total market earnings did not disappoint, as headline expectations were for much lower earnings than what the corporate market had projected.
These headline expectations and European contagion seem to be causing the high concern and volatility in the markets. The higher the volatility, the lower prices need to be to generate acceptable returns. This may be the reason for the market declines this year. There is reasonable growth in earnings and companies seem to be balance sheet healthy with high current ratios. The volatility in the markets could therefore be the result of social unrest in many areas on the globe.
It is possible that social action can evolve and become more productive than what we are witnessing today. For example, Greece (the main country that seems to be having the most social unrest) is planning a 10 gigawatt (GW) solar plant driven by possible investors from Germany. Greece has twice the solar energy than Germany per square foot. Germany has developed a solar industry far superior than any other country in the world. The project is called “Helios”, the Greek Titan god of the sun.
It is true that the sun radiates more energy onto the earth in one hour than we use in one year. The problem is spatial. We receive 1 kilowatt of energy per square foot… Alaska a bit less, Greece a bit more. The issue is whether Greece has the necessary space for efficient solar energy production. My daughter, who was recently abroad in Greece, says there is lots of interior space but it is mountainous. Anyway, this could be a possibility – at least Greece could start working on a project, instead of throwing rocks at each other. We will keep following this Helios project… who knows.
We are also following another energy transition in Boulder, Colorado. The residents there havekicked out their utility, Xcel Energy, and have gone to court to decide how much to pay for the local utility assets. I believe there are more PhDs as a percentage of population in Boulder than any other city in the world. This might be an overstatement, but basically this area may not be driven by misinformation. Xcel relies on coal plants for most of the electricity and even spent $1 million to defeat the Boulder ballot measures, according to the WSJ, but the residents believe there may be a better way to produce their energy.
For the time being, natural gas continues to be the fuel of choice. Its cost is way lower than oil and I still expect this metric to generate global advancement. Hopefully the markets will catch on, then we can start looking at who has the best technology. In the meantime, the markets continue to be driven by political headlines. Valuations are historically cheap, but who knows what the future political landscape will deliver. If you have the patience to wait out the political concerns, I believe your portfolio will then begin to reap the advancement of energy technology. Energy is the currency of nature.
To move this forward and benefit from this opportunity, consider investing in the Craigmillar Covestor model. Thanks for your support.
