Tom Konrad CFA
Outlook 2013 photo via BigStock
Last December, I asked my panel of managers of green funds and portfolios to predict the major trends of 2013, and pick their top stock for the year to come. I wrote a series of articles based on their responses, which I’ll reference below.
I plan to ask them the same questions this year, but first I will check on how they’ve done so far.
Not everyone on my panel responded to all the questions, but here are the ones who did:
- Jeff Cianci is Chief Investment Officer at equity investment fund Green Science Partners.
- Sam Healey is a portfolio manager at Lamassu Capital.
- Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Shelton Green Alpha Fund (NEXTX) and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha’s Next Economy.”
- Jan Schalkwijk, CFA is a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments in Portland, OR.
- Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)
- Shawn Kravetz is President of Esplanade Capital LLC, a Boston based investment management company one of whose funds is focused on solar and companies impacted by the emergence of solar.
- Dr. Rob Wilder is Index Committee Chair for WilderHill Clean Energy Index (ECO), the first to capture and track this sector. ECO underlies the PowerShares WilderHill Clean Energy ETF (NYSE:PBW.)
Here’s how their predictions turned out:
2013 seems to have been an inflection point, with large gains led by Tesla Motors (NASD:TSLA) and solar stocks reversing several bad years. Four of my managers polled: Wilder, Jabusch, Schalkwijk, and Coven get kudos for saying 2013 could mark a new era for clean energy, but none of them pinpointed the nature of the change. Wilder thought conservatives might start embracing renewable energy, while Schalkwijk, and Coven thought investors would start paying more attention to companies with strong fundamentals. Jabusch was closest to the mark when he said the green economy might be closer to mainstream acceptance, although he thought acceptance of climate change would be the driver for this change. Solar City (NASD:SCTY) is bringing solar into the mainstream, and Tesla Motors’ (NASD:TSLA) cars are at least the object of mainstream desires, even if they are still out of reach.
LED stocks did exceptionally well, but not better than cleantech stocks in general. Picks with significant exposure to LEDs were Universal Display Corp. (NASD:OLED, formerly PANL, up 41%), Cree (NASD:CREE, up 63%), and Veeco Instruments (NASD:VECO, up 8%.) Again, three managers (Cianci, Schalkwijk, and Coven) should get credit for highlighting a successful sector, but I still have to reserve the highest marks, since other cleantech sectors did much better.
Three managers had thoughts on Smart Grid company EnerNOC (NASD:ENOC). The stock did well, up 48%, so I have to give credit to Healey and Jabusch, who praised it. Coven, on the other hand, gets dinged because he thought the stronger entry of utility companies into the smart grid space (which did not happen) would either “severely hurt ENOC or push it to be acquired by an Electric Utility or services company.”
Solar Stocks shone most brightly in 2013, with solar indexes more than doubling since last December, but no one seems to have seen it coming. The best call was from solar specialist Kravetz, who expected solar stocks to have their “first profitable year” after four years of losses. Jabusch and Coven correctly predicted consolidation in the solar industry, but did not express an opinion on the direction of solar stocks.
Other Trends: Coven made a few predictions which did not make it into any of my articles, but that was no fault of his own, they just did not fit the themes in others’ predictions. He thought a strong move towards Natural Gas Vehicles would help NASD:CLNE, NASD:FSYS, and NASD:WPRT, but these three were flat for the year. He also called for the reductions in Solar PV subsidies in Northern States. This happening where I live in New York, and the addition of a net metering charge in Arizona is also a move in that direction. He accurately predicted continued acquisitions by conglomerates, poor performance of Japanese cleantech companies, increased focused on grid security, and predicted consolidation in the wind industry. Overall, I’d say his other predictions were pretty good.
Below, I’ve put together a chart of the pe
rformance of each manager’s “top pick.”
Several did not limit themselves to one stock as I’d asked. Jabusch picked four stocks, Coven listed many of which I selected the six that he seemed to recommend most highly, and Healy picked two. For these managers, I’ve included yellow bars with the average return of the stocks they picked. Dr. Wilder takes his role as the manager of a passive index seriously, and does not pick stocks. Since Jabusch has a mutual fund which went public in March, and Coven and Wilder each manage the indexes behind the ETFs PZD and PBW, respectively, I’ve included the performance of these funds as red bars.
Finally, the last three columns (“Avg.”) show composite portfolio formed from these picks. The blue bar is the result of equally weighting the 14 stock picks (hence giving more weight to managers who picked more stocks) for a 49%. If instead the portfolio is equally weighted by manager, the return is a higher 54% shown in yellow. This boost results from the relatively higher weight given to Amtech Systems’ (NASD:ASYS) 160% return. Finally, a portfolio composed of NEXTX, PZD, and PBW weighted equally, would have returned 46% (red bar), at least if the NEXTX investment had been kept in cash until that fund went public in March.
As is fitting in a year that solar stocks performed so well, the best stock pick was solar supplier Amtech Systems (NASD:ASYS). It was picked by solar specialist Shawn Kravetz. Of the others, only JAbush chose a solar stock, First Solar (NASD:FSLR), as one of his four picks.
Both Coven and Jabusch outperformed their own funds. This might tempt us to conclude that they could do better by focusing more on their top picks. However, Jabush’s NEXTX became public in March, and given the strong performance of cleantech stocks at the start of the year, it probably would have been up another 10% to 15% if it had been around for the full year. After adjusting for that, the difference between the performance of their top picks and the funds they manage is probably too small to reach any conclusion.
Predicting the stock market and picking the best stocks is always hard. For those managers who stuck to the rules and picked only one stock, it was even harder, since company events can often overwhelm the trends.
It’s also hard to compare these managers against each other, but of the seven, Shawn Kravetz deserves praise for having, by far, the best stock pick. Rob Wilder also did well, by being true to his calling as an index manager, and riding that index to strong returns in a year when none of these prognosticators foresaw the incredible rise of solar stocks. Finally, I think Garvin Jabusch needs to be singled out both for the strong performance of his mutual fund in the seven months it’s been public, and and for picking four stocks that did better than any other manager’s in my panel besides Kravetz’s single pick. He also recently commented to me that his favorite pick among the four became First Solar (NASD:FSLR) when, a day later, JP Morgan picked it as their one “stock to avoid” for 2013. It’s up 85% since then.
As for the others, returns ranging from 8% to 41% would not have been anything to complain about in a normal year, and they had some good insights into the sector. As a green money manager myself, I’d say I also fall in to this group: Our returns have been decent, but nothing like those of solar stocks or sector indexes like Rob Wilder’s.
In any case, one (or three) years’ returns are not enough to judge a manager’s skill. How will green stocks and these managers do in 2014? I plan to ask them soon, so check back in December.