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Tom Konrad, Ph.D., CFA
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
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 Ten
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.
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
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
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 3 months of free trading at this
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.)
How The Stocks Fared
The following chart (click for full-size version) shows how the
individual stocks fared. The green (yellow) bars show the High
(Low) Target I gave for each at the start of the year. A few
green bars are missing where the high target is off the scale of the
chart. I predicted that most of the stocks would end the year
between the high and low targets. Only Enviva ended outside
the range, finishing about 1% above the high target.
In the discussion below, I’ll look at how each stock performed for
the year, and why. For those stocks not included in 10
Clean Energy Stocks for 2017, I’ll talk discuss my outlook and
why they were dropped. My outlook for stocks included in the
2017 list can be found here.
Pattern Energy Group
12/31/15 Price: $20.91. 12/31/15 Annual Dividend: $1.488
(7.1%). Beta: 1.22. Low Target: $18. High
12/31/16 Price: $18.99. 2016 Dividend (Yield): $1.58
(7.55%). Current Yield: 8.6%.
2016 Total Return: -2.0%
Wind Yieldco Pattern Energy was hurt early in the year due to low
wind production because of El Nino weather conditions, and late in
the year because management realized that internal accounting
controls had become inadequate as the company grew. Management
does not believe that any of its numbers were actually misstated and
is working to correct the problem. I’m wildly enthusiastic
about the stock at the current price, and it is my top pick in the
Enviva Partners, LP
12/31/15 Price: $18.15. 12/31/15 Annual Dividend:
$1.76 (9.7%). Low Target: $13. High Target: $26.
12/31/16 Price: $26.80. 2016 Dividend
(Yield): $2.025 (11.2%). Current Yield: 7.9%. 2016
Total Return: 60.7%
Wood pellet focused Master Limited Partnership (MLP) and
Yieldco Enviva Partners was the biggest winner for the year.
Although a 7.9% current yield is still decent, I expect higher
yields from MLPs than other stocks because of the higher and more
complicated taxes on distributions.
I also worry that if Donald Trump chooses to ignore the United
States’ obligations under the Paris agreement (as it looks very
likely that he will), Europeans may also slow down their efforts to
reduce greenhouse gas emissions from electricity generation.
This would affect Enviva’s potential long term growth because its
biggest customers are European coal plants which have been converted
to burn wood pellets instead. I also expected that states
plans to comply with Obama’s Clean Power plan would have led to some
US coal plants also being converted to burn wood pellets. That
prospect is also less likely with Trump as President.
No matter what happens in Europe, existing contracts are long term
and unlikely to be at risk. In fact, the European
Commission recently approved a subsidy to help Enviva’s
customer, Drax, pay for wood pellets produced by Enviva and burned
in a converted coal power station in North Yorkshire, in the UK.
The combination of less attractive valuation and diminished growth
prospects led me to drop Enviva from the 2017 list and sell my
position. I will continue to watch the stock and buy again if
it falls to more attractive levels.
Partners, LP (NYSE:GPP)
12/31/15 Price: $16.25. 12/31/15 Annual
Dividend: $1.60 (9.8%). Low Target: $12. High
12/31/16 Price: $19.80. 2016 Dividend
(Yield): $1.638 (10.1%). Current
Yield: 8.5%. 2016 Total Return:
Ethanol production MLP and Yieldco Green Plains Partners also faces
risks from a Trump administration. The oil industry hates the
EPA’s Renewable Fuel Standard (RFS), which requires a minimum volume
of ethanol to be blended with gasoline, and Trump has strong ties
and large investments in the industry. His likely cabinet is
also filled with oil men.
This uncertainty, along with a less attractive valuation due to
gains in 2016 have led me to drop GPP from the 2017 list and sell my
Yield, A shares (NYSE:NYLD/A)
12/31/15 Price: $13.91. 12/31/15 Annual Dividend:
$0.86 (6.2%). Beta: 1.02. Low Target: $11. High
12/31/16 Price: $15.36. 2016 Dividend (Yield): $0.95
(6.8%). Current Yield: 6.5%.
2016 Total Return: 17.8%
Yieldco NRG Yield’s (NYLD
seems likely to remain largely unaffected by a Trump
administration. Since its valuation remains attractive, it is
in the 2017 list.
Terraform Global (NASD: GLBL)
12/31/15 Price: $5.59. 12/31/15 Annual Dividend:
$1.10 (19.7%). Beta: 1.22. Low Target: $4. High
12/31/16 Price: $3.95. 2016
Dividend (Yield): $0.275 (4.9%). Current
Yield: N/A. 2016 Total Return: -21.2%
Yieldco Terraform Global struggled with its former sponsor Sun
bankruptcy. This impacted its ability to file timely financial
reports, and led to significant uncertainly about the company’s true
The company has begun to release financial data and regain
compliance with NASDAQ listing requirements. I expect the
company to be bought by a large company in 2017, possibly in the
next few months. I expect the sale price will be between $4
and $6 per share, most likely between $4 and $5. Given the
relatively modest expected gain, and the fact that I might need to
find a replacement early in the year, I have dropped GLBL from the
2017 list. I maintain my personal position in the stock and in
Sustainable Infrastructure (NYSE:HASI).
12/31/15 Price: $18.92. 12/31/15 Annual
Dividend: $1.20 (6.3%). Beta: 1.22. Low
Target: $17. High Target: $27.
12/31/16 Price: $18.99. 2016 Dividend
(Yield): $0.93 (6.5%). Current
Yield: 6.3% 2016 Total Return: 6.5%
Clean energy financier and REIT Hannon Armstrong has fallen over
the last two months due to rising interest rates and concern that
it might lose its status as a REIT. I feel the risk of a
potential loss of REIT status has been overblown.
Hannon Armstrong remains in the 2017 list. I have been
adding to my position, which I had reduced for re-balancing when
the stock was in the $22 to $25 range.
I almost dropped Hannon Armstrong from the list last year given
the plethora of highly attractive Yieldcos at great valuations at
the time. This year, keeping it was a very easy decision.
Renewables Inc. (TSX:RNW,
12/31/15 Price: C$10.37. 12/31/15
Annual Dividend: C$0.84 (8.1%). Low Target:
C$10. High Target: C$15.
12/31/16 Price: C$14.34. 2016 Dividend (Yield):
C$0.88 (8.5%). Current Yield: 6.0% 2016 Total
Return (US$): 52.6%
Canadian listed Yieldco TransAlta Renewables’ prospects are
unaffected by political developments in the United States, but its
large gains in 2016 have given it a less attractive
valuation. It also owns significant natural gas assets,
making it less green than most of the Yieldcos.
Although the RNW is not in the 2017 list, I maintain a reduced
position, and might increase my stake if the price falls.
Renewable Energy Group
12/31/15 Price: $9.29. Annual Dividend: $0.
Beta: 1.01. Low Target: $7. High Target: $25.
12/31/16 Price: $9.70. 2016 Total
Advanced biofuel producer Renewable Energy Group, like ethanol
producers (see the Green Plains Partners discussion above), is
potentially more vulnerable to action by an administration
skeptical of renewable energy than are Yieldcos.
If the EPA’s incentives for biodiesel and renewable diesel remain
unchanged, the company’s profits and stock price have the
potential for explosive gains. That prospect is far from
certain, however, so I have dropped the company from the 2017 list
and greatly reduced my personal holdings.
MiX Telematics Limited
12/31/15 Price: $4.22 / R2.80. 12/31/15
Annual Dividend: R0.08 (2.9%). Beta:
-0.13. Low Target: $4. High Target: $15.
12/31/16 Price: $6.19 / R3.20. 2016 Dividend
(Yield): R0.08/$0.138 (3.3%) Current
Yield: 2.4% 2016 Total Return: 51.1%
Software as a service fleet management provider MiX Telematics is
a significant potential beneficiary of a Trump
administration. Many of MiX’s largest clients are part of
the global oil and gas industry. The drilling revival that
Trump hopes to bring about should lead these customers to buy more
vehicles, and they pay MiX for fleet management on a per-vehicle
Despite MiX’s significant gains in 2015, a low priced stock
buyback and the improving economic backdrop return the company
keep MiX Telematics in the 10 Clean Energy Stocks list and my
portfolio for the third year in a row. I liked MiX at $6.50
at the start of 2015, liked it more at $4.22 a year ago, and still
like back at $6.50 today. The share price does not reflect
the advances the company has made over the last two years, nor
does it reflect MiX’s underlying value.
Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25. Annual Dividend:
$0. Beta: 1.1. Low Target: $5.
High Target: $15.
12/31/16 Price: $5.50. 2016 Total Return: -9.2%
Energy service contractor Ameresco looked to be recovering from a
long slump before the November election. This recovery was
at least in part driven by the Obama administration’s efforts to
improve the energy efficiency of government operations.
Although the Republicans and Trump are not openly hostile towards
energy efficiency in the way they are towards renewables, it seems
unlikely that it will be a priority for them.
At worst, President Trump could remove many of Obama’s energy
efficiency targets for government operations with the stroke of a
pen, cutting into Ameresco’s future business. With these
risks in mind, I dropped Ameresco from the 2017 list and sold all
my personal holdings.
The incoming President and Congress are skeptical of climate change
and have yet to recognize that clean energy is far more effective at
creating good paying domestic jobs than traditional fossil
fuels. Trump himself is highly unpredictable and many of his
election promises, if implemented, are more likely to harm than help
the US and world economy. In particular, promises of increased
spending and tax cuts could send the deficit and interest rates
soaring. Promises to talk tough and renegotiate trade deals
might even lead to a global trade war, with crippling effects on the
Against this uncertain and potentially volatile backdrop, the
valuations of many defensive clean energy stocks remain
attractive. A significant allocation to cash seems prudent,
but investments in defensive, attractively valued companies such as
Clean Energy Stocks for 2017 could still pay significant
Disclosure: Long HASI, MIXT, RNW/TRSWF, PEGI, NYLD/A, REGI,
GLBL. I get $1 when someone buys any of my created Motifs.
DISCLAIMER: Past performance is
not a guarantee or a reliable indicator of future results.
This article contains the current opinions of the author and
such opinions are subject to change without notice. This
article has been distributed for informational purposes only.
Forecasts, estimates, and certain information contained herein
should not be considered as investment advice or a
recommendation of any particular security, strategy or
investment product. Information contained herein has been
obtained from sources believed to be reliable, but not
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