February 10, 2006
Two New Indexes Help Wean Us From Oil Addiction Via Clean Energy and Cleantech
by Bill Baue
The WilderHill New Energy Global Innovation Index tracks clean energy companies internationally,
while the Cleantech Index tracks cleantech companies in the US.
"America is addicted to oil," said President George W. Bush in his State of the Union
address last week. "The best way to break this addiction is through technology," he added by way
of introducing the Advanced Energy
Initiative--a 22-percent increase in clean-energy research on "zero-emission coal-fired plants,
revolutionary solar and wind technologies, and clean, safe nuclear energy." In the weeks before
and since this speech, two new indexes have launched through the American Stock Exchange (Amex) that advance elements of this agenda in the
The WilderHill New Energy Global Innovation Index (ticker:
seeks to be "the purest and most authoritative benchmark for the development of the clean energy
industry worldwide," tracks 86 clean energy companies trading on 18 markets globally. The Cleantech Index tracks 75
US companies with majority involvement in "cleantech," defined as "any knowledge-based product or
service that improves operational performance, productivity, or efficiency while reducing costs,
inputs, energy consumption, waste, or pollution."
"What we are seeing is that mainstream
investor interest in the energy side of sustainability has really rocketed in the past 24 months,
starting with CalPERS/CalSTRS Green Wave Initiative, then with Goldman Sachs
investments in Zilkha
Renewables and Nordex, GE's Ecomagination, BP's
Alternative Energy initiative, and now the President's State of the Union speech," said Michael
Liebreich, CEO of New Energy
Finance, co-publisher of the NEX index. "The interest in clean energy is driven not just by
sustainability issues and the Kyoto Protocol, but also by oil depletion and energy security
concerns, and our impression is that it is far outstripping interest in other areas of cleantech."
"That said, we see the debate as being far more about clean versus conventional energy,
rather than clean energy versus cleantech," Mr. Liebreich told SocialFunds.com.
the clean energy and cleantech indexes are distinct enough as to be complementary.
track somewhat differently, as the global focus of NEX nicely allows for non-correlation with US
indexes such as the Cleantech Index," said Rob Wilder, founding CEO of WilderShares, the other co-publisher of the NEX index. "The
Cleantech Index also offers exposure to areas like water that aren't covered in the NEX alone."
The non-correlation with US indexes also distinguishes NEX from its precursor, the
WilderHill Clean Energy Index (ECO), launched in August 2004.
aspects sizably represented within NEX, like wind power, that are less weighty in ECO--in part
because many wind power companies are based in Europe, Asia, and elsewhere outside the US," Dr.
Wilder told SocialFunds.com.
Elias Azrak, co-founder of the ECO index and also of CleanTech Capital Indices that publishes the
Cleantech Index, points out that constituents in ECO and the Cleantech Index overlap only by about
20 percent--NEX and the Cleantech Index overlap even less.
"I do not think NEX and the
Cleantech Index are competing with each other but by launching more products, we are helping to
develop liquidity and attract more capital to the environmental sectors, which is the name of the
game," Mr. Azrak told SocialFunds.com.
PowerShares Clean Energy (PBW), an exchange traded fund (ETF) tracking the ECO
index that launched in March 2005, has over $310 million in assets under management. PowerShares
Water Resources (PHO), an ETF
tracking the Palisades Water Index (ZWI) that Mr. Azrak helped launch in December 2005, has more
than doubled assets from $138 million by the end of last year to over $370 million now.
Mr. Liebreich of New Energy Finance places the growth of ERI in a broader context.
all of our research at New Energy Finance we are trying to define a new asset class for investors -
in other words a group of investments that is subject to one defined set of drivers, that exhibits
non-correlated behavior vis-a-vis other asset classes," he said. "What we have seen from the
back-testing of the NEX is that we have been able to identify a group of publicly quoted companies
for which this holds."
Three-year annualized returns for NEX would have been 29.27
percent, slightly underpacing the Amex Oil index (30.23 percent), but outstripping the S&P 500
Energy index (26.73 percent), the NASDAQ 100 (18.67 percent), and the S&P 500 (12.37 percent.)
Preliminary results of backtesting for the Cleantech Index show three-year annualized returns of
"It is clear that a professional investor who had previously been
investing in the energy sector, whether utilities, oil and gas, or both, would have enhanced
returns and/or reduced risk by investing against the NEX," said Mr. Liebreich. "That is very, very
significant, because it can unlock far more investment volume into the sector than just retail
flows from the concerned wealthy."
Investable products are in the works for both NEX and
the Cleantech Index.
"We've just signed with PowerShares to offer an ETF for NEX in the
US, following a registration process," said Dr. Wilder. "But we also expect to offer other
products outside of the US based on the NEX Index, and welcome inquiries about that."
have received interest from several institutions about the possibility of launching products that
will track the Cleantech Index," said Mr. Azrak. "While these are not necessarily ETFs, obviously
we are also interested in having an ETF and will be talking about it with the usual suspects."