Tuesday, February 17, 2009

Green Is Dead: Long Live the Green

After a long hiatus, Smug is back. Not so much back (Smug never left), but making a more conscientious effort to reprioritize posting. And no time like the present as the market quietly falls into oblivion.

Some very quick personal updates:

  • Smug Investments launched at just the wrong time, stalled, and de-launched temporarily. Funding is dry for hedge fund start ups, green or not, even with no leverage. Despite that, the model is still running and trading - we lost roughly 16% in 2008, which ain't so bad considering it's a.) all publicly traded, and b.) the S&P lost 40%. More on the Smug model to come in future posts.
  • I've started working at a non-profit, Ceres, in their Investment division. I manage their Clean Tech Investment Programs, facilitating some of the largest institutions in the world to invest in clean tech and sustainable vehicles. Smug is not dead - Smug is Smugger. For more information on my non-profit work, see www.incr.com (the Investor Network on Climate Risk) or www.ceres.org.
On to bigger and better things.

So many of you (if there are any of you left) are in the unenviable position of losing money in the current market. Green is definitely not an exception - the NEX index lost nearly 60% last year, a measure of global green investments developed by Robert Wilder (WilderHill leased the index to make the PowerShares Global Clean Energy ETF - ticker PBD). No happy campers in that boat. The headlines are getting worse and worse, as well - things like "Green Is Stalling", "Green Is Dead", "Why Everything Sucks", and "Could Things Be Worse for Climate Change?". Oddly, the ominous seems to downplay the positive things coming out of the new Obama administration - longer subsidies for clean energies, infrastructure focused on green jobs, and allowing states to put mandates on car emissions.

So let's put this all in a bit of perspective: yes, it's bad. But it's not all bad. Especially if you move your world view beyond the walls of the US markets.

Green investments now are almost universally at or near their 52 week low. Hell, they are at or near their 3 year and 5 year lows. Some of them? All time lows. And finally, we have governmental support in the US for green. So ultimately, ask yourself this: where else would you put your money?

This is a question I've spend the last 4 months posing to some of the largest institutions in the world - CalPERS, CalSTRS, NYCERS, and others. Some of them are selling investments to make payroll. Others are making cuts. Many of them are literally pulling out and investing everything in Treasuries that are yielding between 0 and 1 percent - the equivalent of putting money in the mattress. But when posed the question, they have no answer. Except green.


Here are the driving forces:
1.) Policy - everyone is holding their breath for Obama to make his first real move. It's coming, and it's coming soon. Policy favors green for the next 4 years, and where the government incentivizes, the money is soon to follow.

2.) Growth potential - in public equity markets, green is at an all time low. Does anyone think, that even if it were to sink another 10 or 15%, that it won't come back? Does anyone honestly think that ALL of these companies will be bankrupt? That there is no future in wind, solar, or other renewables?

3.) Cash - the biggest players have either been sitting on the sidelines with cash for a while, or have pulled out of the market in the last few months anyway. Some of this cash will go to avoiding the need for more ridiculous bailout money. But much of it, as in the case of some of the big institutions (and institutional like investors a la Warren Buffet), there will come a point in the not so distant future where everything looks cheap and the bottom feels near. When the money starts pouring in, where do you think it will go?

I'll leave you with this parting portfolio snapshot of Smug Green Global for you to ponder, it's our last trade allocation:

CRATX CRA Qualified Investment Retail
CXA California Municipal Bond ETF 11.96%
DBA DB Agricuture ETF 11.40%
FXS CurrencyShares Swedish Krona Trust ETF 10.87%
INY SPDR New York Municipal Bond ETF 12.74%
JJG iPath DJ AIG Grains ETF 11.19%
PAXHX Pax World High Yield A 15.95%
UDN PowerShares DB USD Index Bearish ETF 12.37%

Bonds and agriculture. Things have changed, but this portfolio saved me over 20% during October's drop (Smug was down -7.58%). If you've followed our metrics in the past posts, you'll know why these things are "green". If not, do some catching up.

And hopefully I have time to keep this up!