The PowerShares Cleantech Portfolio ETF (NYSE:PZD - News) finished first last year of 36 public equity funds focused on clean energy and/or clean technology, according to Bloomberg New Energy Finance.
Of the 36 mutual and exchange traded funds worldwide that Bloomberg NEF tracked, the average fund fell 6.6% in 2010. In contrast, PowerShares Cleantech Portfolio ETF (NYSE:PZD), which tracks The Cleantech Index rose 7.5% in 2010 and rose 11.6% in Q1 2011.
Rafael Coven, Cleantech Indices' managing director and index advisor, noted that the poor performance of most renewable energy stocks in 2011 was a major reason why Cleantech Index-based funds significantly outperformed their peers. Coven said the index had less exposure to the sector because it is diversified across many industries and includes only the best companies involved with clean technology. The index is comprised of 72 public companies that are leaders in clean tech innovation and commercial deployment from many industry sectors: energy efficiency, renewables, advanced materials, water purification, eco-friendly agriculture and more.
Other funds tracking the Cleantech Index had similar performance: they include the recently listed PowerShares Cleantech ETF in Mexico (ticker: PZD.MX) and the KSM Cleantech Index ETF (Bloomberg ticker: KSMCLNT) in Israel.
Coven said major issues hurting renewable energy performance in 2010 included low oil and natural gas prices, cuts in subsidies particularly for solar in Europe, commoditization of solar photovoltaic cells due to massive production capacity increases and insufficient product differentiation causing prices to fall rapidly (good for users, bad for product makers), much higher competition for wind turbines and gear boxes, a fundamentally flawed strategy of nearly all alternative energy funds, and many other challenges.
A lot of renewable energy funds were hurt because of their heavy focus on solar, he said. "Solar panels are becoming commoditized and production volume was added in huge amounts, so pricing is collapsing.That's a pretty ugly macroeconomic picture ... Even though the business is growing tremendously, it's hard to make decent money," Coven said.