Should Retail Investors Follow Venture Funds Into Cleantech? (TSLA, BP, F, TM, FSLR, ESLR, SPWRA, TAN, GRID, PZD)
According to an Ernst & Young analysis of Dow Jones VentureSource data, U.S. venture capital investment in cleantech start-ups hit $1.5 billion in the second quarter, up a whopping 64% year-over-year. Venture funds often cast a wide net with their investments in hopes that one in ten may be a home run; however, Q2 data suggests that investors are pouring more money into developing firms as they approach commercial sustainability. Jay Spencer, the accounting firm’s Americas Cleantech Director said, “This quarter’s investment was dominated by later stage deals as investors provided follow-on financing.”
Following the late-June Tesla Motors, Inc. (TSLA) IPO and recent alternative energy hype following BP’s (BP) oil spill in the Gulf of Mexico, many investors have turned the spotlight back to “green” equities, many of which are still trading at discounts after a second-quarter pullback rocked the more speculative sectors. Meanwhile, California-based electric vehicle infrastructure firm Better Place, venture-backed EV maker Fisker Automotive, and low-emission combustion engine firm EcoMotors, where Bill Gates is an investor, were listed among the largest recipients of venture capital in Q2.
With a number of still speculative “green” equity plays already listed on major exchanges, retail investors have no shortage of ways to add cleantech exposure, but depending on risk tolerance and investment objectives, following the venture funds may not be the best strategy. A look at the Energy Storage and Battery Technology Stocks Index shows that most components are off by more than -10% over the last six months despite a wave of electric vehicle hype from pure-plays like Tesla as wells automotive giants Ford Motor (F), Toyota Motor (TM), and General Motors.
In Q3 2009, solar firms were the largest recipients of global venture capital investment, according to Reuters. While prescient bets on select Chinese players have paid off over the last year, domestic firms like First Solar (FSLR), Evergreen Solar (ESLR), and SunPower (SPWRA) are all off by -20% or more for the period. The last year has presented ample opportunity for traders to scalp profits amid high volatility, but it still takes a thick-skinned investor to buy and hold alternative energy pure-plays.
Though still volatile, many retail investors opt for exchange-traded funds (ETFs) in lieu of individual stock picks. As a whole, the Green ETFs Index is up by 11% over the last month with the Claymore/MAC Global Solar Energy Index ETF (TAN), First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID), and PowerShares Cleantech Portfolio (PZD) among top performers. All three are still in negative territory on a three-month basis.
Investors can track six cleantech sub-sector Indexes for performance trends and a suite of other metrics at tickerspy.com.
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