A Reader Responds: Yes, there is Alternative Beta (and Alpha) in Alternative Energy
| Mar 26th, 2008 | Filed under: Guest Posts | By: Alpha Male |
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Alternative energy is one of a whole set of new asset classes facing institutional investors. Like portable alpha and 130/30, it has created a new set of opportunities and risks for both investors and managers. So what better way is there to explore an emerging market such as “Clean Tech” than to examine its alpha-generating potential? Thus, last fall we stacked a major alternative energy ETF against an energy ETF. But to our surprise, we found very little sustained outperformance.
Several of you wrote in to say we were ignoring the social benefits of clean technology (which we were) or that we were trying to evaluate these technologies solely on the basis of cold hard numbers (which we also were). But one of Canada’s leading clean tech fund managers wrote in to acknowledge our analysis and suggest why there is still alpha potential in alternative energy. What follows is an interesting, and refreshingly dispassionate, perspective on this issue by Greg Payne, the lead portfolio manager at Investeco Financial, an environment sector fund manager.
Special to AllAboutAlpha.com by: Greg Payne Investeco Financial
In a posting on November 26, 2007 (Is There Alternative Beta in Alternative Energy) AllAboutAlpha’s “Alpha Male” states that alternative energy returns over the past year have been both significantly correlated to general energy prices, and highly volatile. This is true. But as Alpha Male admits, alternative energy may provide alpha and alternative beta in the future in ways that we have not seen in the past. For good reason, it will. This is precisely why active management will yield significant benefits in this sector.
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[...] After the huge interest in last week’s commentary by clean tech investor Investeco on alternative beta in alternative energy, we dispatched our intrepid “fly on the wall” (see his previous posting from London) to one of the biggest events on the clean tech investing calendar, the Wall Street Green Trading Summit. We asked him to report back on any new markets that were ideally suited for an alpha-centric investor. Here’s what he found…  [...]