With Earth Day, comes a pitch to invest in "clean energy"

Money managers see clean tech investment as an opportunity

By Robert Elder
AMERICAN-STATESMAN STAFF
Monday, May 05, 2008

It figured that Wall Street wouldn't let Earth Day pass without trotting out another way to invest in "clean energy."

And sure enough, on April 22, Van Eck Associates Corp. launched an exchange-traded fund (ETF) that focuses on solar energy. It promises to give investors access to the global solar industry, which it says "appears poised to enter a period of remarkable growth."

No doubt about that. The really remarkable thing, though, is what the solar-investment fund represents: first, Wall Street's ability to find new ways to separate investors from their money, and second, the unrelenting hype over green investing (also known as "clean tech").

Before we get into that, what is an exchange-traded fund? It's a basket of stocks that tracks an underlying index — say, the S&P 500 — or can be configured, like the solar ETF, to track companies in a certain industry. An ETF is similar to a mutual fund, but unlike a mutual fund it can be traded during the day like a stock.

But just as a mutual fund industry has polluted the fund world with thousands of costly and questionable offerings, so too has Wall Street taken the reasonable idea of ETFs and pushed the concept to the outer limits of common sense.

Let's break down the solar ETF, which trades under the ticker KWT.

Announcing the product, Jan Van Eck, principal in Van Eck Global, touted solar's growth potential as a reason to invest: "Some estimates indicate that 30 percent of the world's energy supply could come from solar by 2040, up from less than 1 percent today," he said in an Earth Day statement.

If nothing else, this claim demonstrates Van Eck's sense of humor. Can anyone really predict the the percentage of energy that solar power will supply 32 years from now?

Leaving aside the predictions, though — let's look at the 27 companies that make up the solar ETF.

They contain leading names like First Solar — up 1,207 percent (no misprint) since its initial public offering in 2006 — Q-Cells AG, Evergreen Solar and SunTech Power.

As a group, these stocks have benefited from the clean-energy hype and are much more richly valued than the market as a whole.

The stock-market value of First Solar, for example, is nearly $22 billion, which is more than the market value of Ford Motor Co.

And there's the rub: The prices of the stocks within the ETF likely are not sustainable.

To maintain their lofty prices, many of these companies have to do what almost every company on earth has found impossible to do: keep growing their earnings at a sizzling pace and do it consistently.

The stocks aren't the only expensive thing about the new ETF. Van Eck is charging investors 0.65 percent of assets under management, a fairly stiff fee in the world of ETFs.

But you can't blame them for trying. Hardly a day passes without news of a money manager or financial firm jumping into the clean-tech pool.

Last week, one of the granddaddy venture firms, Kleiner Perkins Caufield & Byers, confirmed a $500 million Green Growth Fund to invest in alternative energy and ways to cut greenhouse gas emissions.

That's chump change on the East Coast, where two private equity firms are raising a combined $5 billion for alternative energy funds.

Last month, Russell Read left his position as head of the biggest U.S. pension fund, the California Public Employees Retirement System, to launch a clean-tech investment fund.

With so many dollars chasing a limited number of investment opportunities, it appears that green tech is in the midst of some major irrational exuberance. When the bubble pops, beware of the stock prices raining on your head.

But remember, you're never short of choices when it comes to energy investments. Van Eck has hedged his bets. If the solar play doesn't work out, check out the ETF he launched in January.

This one trades under the ticker KOL. You guessed it — nothing but coal stocks in that one.

relder@statesman.com

Robert Elder covers business for the American-Statesman