Chaos in energy sector drives gains in clean energy
May 01, 2011 - Adam Shell - energycentral.com
Funds that invest all their cash in companies tied to alternative energy, clean technology, the oil industry and other natural resources soared 13.7% in the first three months of the year, benefiting from turmoil in the oil-rich Middle East and the anti-nuclear sentiment after the accident in Japan.
The nearly 14% first-quarter gain for natural resources funds was the No. 1 performance among the 79 stock fund classifications tracked by Lipper. It was the second straight quarter the sector topped the performance charts.
A diversified group of companies in the energy patch -- ranging from solar and wind power companies to more traditional oil producers and exploration firms -- saw their stock prices rise amid a confluence of events that, Lipper says, caused a barrel of crude oil to jump almost 17% in the quarter and reignited interest in energy alternatives.
"The political unrest in the Middle East combined with public concern about the future of nuclear energy and attractive valuations of alternative energy companies made for a good first quarter," says Matthew Page, a portfolio manager at London-based Guinness Atkinson Alternative Energy fund.
What drove the gains:
Soaring crude prices. The nearly 17% spike in crude pushed a barrel of oil to $106.72 by quarter's end, says Lipper, boosting the shares of major oil producers that profit from higher prices and increased demand for oil exploration, drilling equipment, refining and oil rig operations, says Frederick Fromm, manager of Franklin Natural Resources fund.
Higher oil prices also benefit companies that provide alternative sources of energy and cleaner, green-friendly energy-related plays, says David Kurzman, co-portfolio manager at Leuthold Global Clean Technology fund.
Much of the boost to alternative energy stocks is related to a shift in investor sentiment. It is "psychological and in the minds of investors," Kurzman says. The nuclear scare plays into investor thinking, as well.
Page agrees: "It gets people thinking about energy security. They start wondering, 'What happens if oil supply from Saudi Arabia goes away? What would that mean for gas prices?'"
Repercussions from nuke crisis in Japan. The accident at the Japanese nuclear power plant has increased fears related to safety, dampened enthusiasm for nuclear-generated energy and revived calls for more stringent safety regulations. That anti-nuclear stance has proved to be a boon to less-risky forms of power, such as solar- and wind-driven alternatives.
Demand for solar panels and the raw materials needed to build the panels used in solar fields and homes, for example, is rising, says Kurzman, whose fund was among the best performers last quarter. One winning solar stock was ReneSola, a Chinese company that trades on U.S. exchanges, he says. Solar stocks are also trading at "once-in-a-lifetime" low valuations, he adds. The solar space, he adds, is also expected to grow 20% to 40% in 2011.
"There is greater acceptance among investors for clean technology companies that are generating profits" and are viewed as potential takeover candidates, Kurzman says. Other clean tech winners included ADA-ES, which reduces hazardous air pollutants, and Cereplast, a company involved in making biodegradable plastics, he says.
With many nuclear plants now off-line around the world due to safety worries following Japan's radiation crisis, demand for natural gas has spiked, helping companies in that business, Fromm adds.
Winning wind stocks. Companies such as Danish-based Vestas, the world's largest wind turbine manufacturer, also benefited from investors' preference for clean and safe sources of energy.
The outlook remains positive for the natural resources sector, Fromm says.
"We still see great opportunities over the next year," he says.
Contributing: Paul Davidson
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