ETF Update: Finding Energy Alternatives

The United States has followed a disturbing pattern in forming energy policy.  Most of the time we focus on fossil fuels.  Alternative energy only gets attention when oil prices are high.  With last year's oil price spike still fresh, there is a just a chance that things will be different this time.

The incoming Obama Administration has a commitment to alternative energy sources, and that is attracting investor attention.  We use the ratings from our TCA-ETF model to spot developments in sector investing.  This week's ratings show interesting moves for both alternative energy and nuclear.  Today we shall focus on the Alt Energy.  (For new readers, there is a more complete description of our methods and ratings at the end of the article.)

Investing in Energy Alternatives

The Global Alternative Energy ETF (GEX) is our choice for investing
in this sector.  The fund is based upon the Ardour Global Index.  Van Eck
Global describes the index as follows:

AGIXLT is a
rules-based, global capitalization-weighted, float adjusted index intended to
give investors a means of tracking the overall performance of a global universe
of listed companies engaged in the alternative energy industry.

The index includes a 2/3 weighting on foreign companies and relatively good
diversification.  While the top five companies constitute 33% of the fund the
overall concentration falls off rapidly.  It is 35% US holdings, with a
beta of 2.1 and a P/E of about 20.  The index declined about 65% in 2008.

Fundamental Analysis

Election Stocks, our sister site, is covering the Obama transition, including this piece on incoming science advisors and their commitment to alternative energy.

Simit Patel at The Trading Goddess makes GEX a favorite choice for 2009 and the coming years, emphasizing both Obama and the decline in fossil fuels.

Kevin Grewal at ETF Trends cites both fundamental (Obama) and technical (50-day MA) reasons for making GEX a sector to watch in 2009.

Tom Konrad has an interesting slant, comparing actively and passively managed funds in the clean energy space.  He finds little difference in performance.

Weekly TCA-ETF Rankings

The
ratings reflect prices and signals as of Wednesday night, December 31st.
In
our daily trading program (for accredited and institutional investors)
we buy the top eight sectors. In our weekly program for individual
investors (free report available upon request) we stick with the top
six sectors.
There
was little change at the top.  We were up about 5.5% on the week, a bit less than the S&P 500.

Based upon the current ratings, we continued our bullish stance in the Ticker Sense Blogger Sentiment poll. We do note that the number of sectors rated "buy" is rather narrow, at 17 out of 57.

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Note for New Readers

Our weekly ETF Update is designed to assist both investors and traders
interested in ETF's and Sector Rotation.  Before turning to the current
rankings, let us undertake a review for readers new to this
series.

Our Method.  In this past article, we described our basic methodology and why we
believe the rankings are useful for fundamental traders and technical traders
alike.  While we urge readers to check out the entire article, the key point is
that ETF's pose challenges and opportunities different from investment in
individual stocks.  The fundamentals may be more difficult to assess.  Even with
a good grasp on fundamental trends, there is a lot of technically-based trading
in ETF's.  This means that those trading with a fundamental approach (and we do this as
well) want to monitor the "hot money" moves.  Here is an article on that point.

The system synopsis. We
look at Trending sectors, Cyclical Sectors, and build in an element of
Anticipation for both entry and exit — thus the name of the model, TCA-ETF. 
While we do not reveal the exact methodology for spotting trends and cycles, the
system is not a "black box."  The basic elements are used by many, and widely
reported.  We even discuss the need for human analysis as opposed to black box
trading.

We report the rankings each week, now on the weekend
with a one-day delay, using the Thursday output from the model.  We monitor and
trade this daily, and offer a free report (request via the email address on the
top left of the site) for those interested in our weekly trading program.

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3 comments

  • sherry January 8, 2009  

    Anyway you slice this one we are going to be in deep trouble if we don’t get on with becoming energy independent. Oil is finite. We are using oil globally at the rate of 2 X faster than new oil is being discovered. The high price of fuel the previous year has brought America to it’s knees and done serious damage to our economy and society. Our nation better wake up and smell the coffee and realize oil is finite, it is running out faster than anyone realizes and it is time to get on with utilizing alternative sources of energy. We should never give others that much power over our economy. America’s need to become energy independent seems to be realized by only a select few. Hopefully our new administration will move forward with this very important issue. I recommend the new book The Manhattan Project of 2009 by Jeff Wilson for anyone concerned about this issue. http://www.themanhattanprojectof2009.com

  • Mike January 8, 2009  

    Jeff–A little surprised about GEX as your alt energy pick given its non-US flavor and highly concentrated positions. I think the space will be a winner but personally, I’m more comfortable with PBW. Of course, I’d be a lot more comfortable if I hadn’t bought last year!

  • Jeff Miller January 12, 2009  

    Mike — We are always open to suggestions about ETF choices, and we revise our universe on occasion.
    I am doing a review right now. Thanks for your comment.
    Jeff