Duncan Stewart: Investing in a clean technology index
Monday, October 29, 2007 | 08:16 AM ET
Money Talks is a collection of daily columns from The Business Network, which airs weekday mornings on CBC Radio One at 5:45 a.m. ET (6:15 a.m. ET in N.L.).
By Duncan Stewart, director at Deloitte Canada Research in Toronto
(Listen to the original audio)
Thursday and Friday of last week saw Toronto invaded by hundreds, if not thousands of clean tech practitioners, inventors and investors for the 9th Clean Tech Forum. It's the sort of timing that makes you say, "Well, how can I get in on this and how can I invest in clean technology companies?"
One of the problems is that individual stocks are always risky. You can get a winner that goes up thousands of per cent, like [the stock mentioned in] my last column, Timminco. But there are other ones that are down 50 or even more per cent in the last year. So, buying one stock at a time is always a challenge for individuals.
So, a lot of people say "Why don't I buy an Index, why don't I buy an ETF" and there are such things. Down on the American Stock Exchange there's a Cleantech Index [Symbol: CTIUS] and there are tracking shares [based on that index called] PowerShares Cleantech, or the PZD, if you want to look up the ticker symbol on that one. [They're] clean tech investments that work.
They work, in fact, really well over the last year. As a matter of fact, although the Standard and Poor's, Dow Jones and NASDAQ are all up about 10 to 20 per cent over the last year, those PZD PowerShares are up 35 per cent. That's not a bad rate of return. So I took a look at that index and I thought I'd kind of run through what some of the advantages and disadvantages of it might be for an investor, especially for a Canadian investor.
Some of the pros -- It's not overly concentrated. The single biggest stock on the index is only about three and a half per cent, which isn't too bad. That's a really important thing. Some indexes have as much as 10 or 15 per cent in a single stock, so you want to avoid concentration. They've tried to clean up that index down there in the AMEX. They used to have a whole lot of companies on it and they tried to restrict it to companies with relatively good pure plays and it's got a total of $300 billion in market cap in aggregate, which is pretty good.
What about the cons? Well, it looks pretty volatile. The performance over the last year is great, but there's probably some risk on the downside for these companies. Many of them are very small individually, many of them only have about a billion dollars of market cap, which is a little on the small side.
But the biggest concern I have is that there are no Canadian names on it and it's all in U.S. currency. As we've seen over the last four or five years, the Canadian dollar vs. US dollar exchange rate is anything but fixed and for investors to have all of their money south of the border is a significant risk exposure on top of an already risky sector.
So I think those index shares are maybe not the best bet for all Canadians.
-- Duncan Stewart
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