Monday, June 29, 2009

Clean vs. Not-So-Clean Energy

While I have not mentioned it much on the blog, one of my favorite sectors to invest in is the energy sector. When it comes to energy ETFs, the 800 pound gorilla is XLE, the energy select sector SPDR that trades over 20 million shares on a typical day. XLE’s holdings are heavily tilted toward the major integrated oil companies, with Exxon Mobil (XOM) and Chevron (CVX) accounting for slightly more the 1/3 of the ETFs holdings, followed by ConocoPhillips (COP), Schlumberger (SLB), Occidental Petroleum (OXY), etc.

With cap and trade legislation passing the House over the weekend, investing in the energy space is getting even more interesting. XLE is up this morning, as are the popular oil services ETF, OIH (the top five holdings favor drillers and include RIG, SLB, DO, BHI and NE) and the exploration and production ETF, XOP (top five holdings are XEC, PXD, EAC, INT and HK.)

There are a variety of ETFs out there in the clean/green space. Perhaps the best known of these and certainly the most popular is PowerShares WilderHill Clean Energy (PBW), whose largest holdings include a healthy dose of solar companies (top five holdings are FSYS, VLNC, SOLR, ESLR, SOL.) Among the more interesting alternatives is a sibling ETF, PowerShares WilderHill Progressive Energy (PUW), which places more emphasis on energy efficiency and nuclear power and has a list of top holdings which includes MX.TO, ES, PX, USU and CCO.TO. For a solar-only ETF play, Claymore/MAC Global Solar Energy (TAN) is an excellent bet. Note that many of the holdings of TAN are not traded on U.S. exchanges. The current top five holdings are MBTN.SW, FSLR, S92.BE, CTN.DU and SWV.BE. Also in the top ten holdings are two Chinese solar companies whose ADRs are available in the U.S.: STP and TSL.

In the chart below, I have highlighted my favorite all-purpose clean energy ETF, PBW and have included a ratio of PBW to XLE in order to get a sense of the relative performance of clean energy with respect to the broad energy sector. While PBW has pulled back with the broader market during the past three weeks, it has continued to perform strongly against the broad energy sector ETF. As the ratio chart hints at, pairs trades involving clean energy ETFs such as PBW, PUW and TAN vs. XLE, XOP and OIH are one way to play the Washington energy legislation game going forward.

[source: StockCharts]

Disclosure: Long OIH, DO, INT and TSL at time of writing.

8 comments:

Eric said...

great survey of the clean energy land, Bill. maybe a good follow up piece would be to explore to what extent solar is still a "levereged play on oil prices" as I've been seeing reported lately. For me, TAN:USO was a good place to start.
Thanks for all you do.

Bill Luby said...

Good suggestion, Eric. Thanks. I definitely need to branch out and get into some new subjects (and eventually return to some older subjects for some in-depth treatment.)

Cheers,

-Bill

ZenProfit said...

Have you read the recent Rolling Stone article on how Goldman Sachs has already gamed the cap and trade tax?

http://zerohedge.blogspot.com/2009/06/goldman-sachs-engineering-every-major.html

Bill Luby said...

ZenProfit, thanks for the heads up on the Taibbi/Rolling Stone article. Great stuff.

-Bill

Anonymous said...

Ok, i have to ask...who is the author of the "Clean vs. Not-So-Clean" piece...I found the exact same article on
http://www.dailymarkets.com/author/coreyrosenbloom/
still a good piece, but one of you has to give credit...

Bill Luby said...

Thanks for the heads up, anon. It looks as if in republishing this piece above, Daily Markets mistakenly attributed the article to Corey Rosenbloom, who authors the excellent Afraid to Trade blog.

I sent them a note and expect the attribution will be cleaned up shortly.

Cheers,

-Bill

Bill Luby said...

For the record the folks at Daily Markets have now corrected the post on their site to give me credit for it.

Anonymous said...

Bill - no prob on misstaken attribution re: article. Enjoy your writings....

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