The S&P 500 just broke the 1,000 mark for the first time since November. With a price-to-earnings ratio of 65, the broadest U.S. benchmark is now about 225% over last year's premium of 20.
That's too top-heavy for many skittish investors out there, especially since we've been inching higher and higher on low trading volume. But as you'll read here, a sell-off this month may mean a late-summer buying opportunity for long-term cleantech ETF bulls.
Market Maxims: Do They Hold True Today?
There are a lot of should's in the investing world. . . and over time, market maxims develop from what were once mere observations.
For example, oil should move in the opposite direction of the dollar. Economic weakness depresses fuel demand and increases interest in dollar-denominated assets, like Treasuries. We saw that play out during last autumn's downturn, when the Power Shares U.S. Dollar Index Bullish ETF (NYSE:UUP) rose by as much as 17% while the S&P 500 dropped by 47%. At the same time, the United States Oil Fund ETF (NYSE:USO) swooned even further to a 76% loss from August to February.
How about the trading tenet that says oil and renewable energy should move in the same direction?
That's largely held true, as well. The chart below compares two top renewable energy ETFs over the past six months to ETFs that represent oil (USO), the greenback (UUP), and gold, represented here by the SPDR Gold Trust ETF (NYSE:GLD).
The green funds highlighted here are the Power Shares Cleantech Portfolio (NYSE:PZD) and First Trust NASDAQ Clean Edge Green ETF (NASDAQ:QCLN):
From a chaotic cluster when everything broke into positive territory back in the spring, we see summertime separation of these energy ETFs from the S&P, and especially from those havens of gold and the greenback.
Cleantech ETFs Have the Energy Advantage
Now oil could pull back and take QCLN and PZD with it. As it stands, though, QCLN is beating the United States Oil Fund and PZD, too.
Though the difference in recent performance among those three is slight, this is where serious investors parse trends and prevailing market logic to hone longer-term strategy. . .
And there's no better way to do that than by looking at the components of two index-based ETFs with similar goals.
The First Trust NASDAQ Clean Edge ETF (QCLN) is made up of 88% U.S.-based companies. It's NASDAQ-listed, making it preferable to many tech investors. QCLN's primary holdings bear out its tech credentials with top holdings, like integrated circuit producer Linear Technology (NASDAQ:LLTC), LED leader Cree (NASDAQ:CREE), and meter-maker Itron (NASDAQ:ITRI).
For my money, though, I like the platter of international offerings that make up the Power Shares Cleantech Portfolio (PZD), an NYSE listing heavy on energy infrastructure stocks. Only 54% of PZD's holdings are based in the United States ― that leaves room for meaty ADRs, like Germany's Siemens AG (NYSE:SI), which operates in over 190 countries.
Government stimulus packages and legislation to mitigate the causes and effects of climate change seem parochial, as they each cater to national concerns. Yet, when viewed from above, the entire globe will soon be awash in targeted funds for renewable energy conversion.
It is here that PZD has the potential to achieve separation from USO and from oil in general.
Kevin Parker, global head of Deutsche Asset Management, says that $45 trillion of cumulative investment is set to rain down on cleantech companies to reduce carbon emissions by 50% from 2005 levels by the year 2050.
This $45 trillion dwarfs even the $26.3 trillion that the International Energy Agency proposes for energy-supply infrastructure spending in the coming decades, and it makes China's half-trillion dollar clean energy stimulus this year look miniscule.
From a technical standpoint, the energy ETFs highlighted above are right at chart resistance that could lead to profit-taking and a share price drop.
Don't fret, though. . . the Power Shares Cleantech Portfolio ETF (NYSE:PZD) will be ready to pounce on at support around $19, down from its current plateau.
Between now and 2050, there's plenty of money to be made. . . and plenty of idols will be smashed. Look at this toppy market as an opportunity in the making.
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