Investment Managers Urge Caution on Renewable Energy

From the International Herald Tribune via the World Business Council for Sustainable Development, an article noting that portfolio managers for renewable energy mutual funds are urging that investors take care when investing in clean energy technology:

The Merrill Lynch New Energy fund has posted stellar returns, with gains of 56 percent in the 12 months through Sept. 30.

Poppy Buxton, a portfolio manager of the fund, attributed the performance to higher oil and natural gas prices, as well as growing concerns about climate change and energy security.

She cautioned, however, against investing in renewable energy based on mood and macroeconomic data alone.

“Although there is a high correlation between the oil price and stock market performance of clean-energy companies, there are other drivers to be aware of,” Buxton said.

“Many companies in the alternative-energy space are small and unprofitable. If market sentiment were to cool and small-cap stocks fell out of favor, clean-energy stocks would suffer, irrespective of commodity prices.”

That view is echoed by Ian Henderson, manager of a natural resources fund for J.P. Morgan Asset Management in London.

“Investors have identified clean energy as an area of growth, but recent history has demonstrated that share-price performance does not always reflect alternative energy needs,” he said. “Valuations and share price movements have been erratic, which seems to suggest that no one is quite sure how best to play.”

I’ll admit freely that some of the complexities here go beyond my basic knowledge of finance and economics, and I suppose these fund managers are concerned about a renewable energy “bubble.” At the same time, the numbers themselves seem awfully promising. It’s interesting that when mentioning slow-developing sectors, fuel cells come up. While readers have noted that this is a promising technology, I have to wonder if the political push towards a “hydrogen economy” hasn’t skewed the markets a bit. If so, does this necessarily mean that other, more proven technologies are safer bets?

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