Ten Clean Energy Stocks For 2016: Year In Review

2016 was generally a good year for the stock market, but the average clean energy investor did not share in the gains. Clean energy investors naturally gravitate toward exciting stocks developing solar and, more recently, electric vehicles. These technologies are bringing great benefits to the planet and customers (including me- I installed a solar array on my home in in 2014, and my wife and I just bought a Toyota Prius Prime plug-in). 

Investors' lousy returns are due to a common problem in sectors with rapidly improving technology: Competition within the industry constantly undermines profitability. I've been warning about this problem since 2009, and I believe that this awareness is a large part of the reason that my "10 Clean Energy Stocks" model portfolios have outperformed the most widely held clean energy ETF, PBW, in every year except 2013. Over the nine model portfolios (2008 to 2016) have had positive returns in six of those years, compared to just two (2009 and 2013) for PBW.

2016 was no exception to this trend, with the 10 Clean Energy Stocks for 2016 model portfolio up 20%, while PBW fell 22%. Again, the culprit was solar, with the industry suffering from overcapacity and rapidly falling module prices. These low solar module prices are great for the planet and have made new solar farms able to compete with fossil generation purely on price, but they lead to non-existent profits for solar companies and investors.

With this backdrop, the list has increasingly featured a new class of stocks, Yieldcos. Yieldcos are the customers of wind and solar manufacturers because they invest in wind and solar farms. As an added bonus, they pay out most of their cash flow in the form of dividends to investors. Given my focus on Yieldcos and other green income stocks, using the beleaguered PBW as a benchmark for my list is increasingly unfair. Fortunately, a Yieldco ETF (YLCO), launched in May 2015. In 2016, I used YLCO as a benchmark for the seven income stocks in the list, and PBW as the benchmark for the remaining three. The benchmark for the whole model portfolio was a 70/30 weighted average of the returns of the two.

2016 review composites

As you can see in the chart above, the change in benchmark did not prevent my model portfolio from producing a total return that was a full 24% ahead of its benchmark, but at least the comparison was fair.

The Green Global Equity Income Portfolio

Also shown in the chart is the Green Global Equity Income Portfolio, a private strategy I have been managing in separate accounts since the end of 2013. I've been exploring options for bringing this strategy to the public for the last year. Despite an excellent track record (annualized returns of 10.6% since inception) I have not yet found a mutual fund company willing to take it public. There is also a hedge fund style version of the strategy which can use shorting, uncovered put selling, and leverage.This version of the strategy has produced a 13.4% annualized return over three years.

While GGEIP is not yet available as a mutual fund, I created a long-only version on the Motif platform, the Green Equity Income Motif 2016 last year. Since GGEIP is an active strategy, I plan to launch a new version to reflect portfolio changes at least once a year.  

If you're interested in trying Motif , you can get three months of free trading at this link.

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Investment Advisor Jan Schalkwijk, CFA at JPS Global Investments offers a more frequently re-balanced version of GGEIP to his clients. 

If you're interested in investing in the 10 Clean Energy Stocks for 2017 model portfolio, I just made it available on the Motif platform as well (or you can buy the stocks individually through your broker.)

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