Every time crude oil and gasoline prices go through the roof, there’s renewed attention on the alternative energy sector.And the recent run for solar stocks and alternative energy investments has been no different.
First to jump in are politicians, offering the promise of clean energy and a massive infrastructure build up that will theoretically would create millions of “green” jobs . Then there are peak oil nuts who think that the supply of fossil fuel is about to run dry. And don’t forget the speculators and fair-weather investors looking for the latest stock market fad.
The renewed attention on the alternative energy sector in the midst of the latest crude oil price spike made its way to Wall Street’s trading floors, and some of the biggest stocks and exchange-traded funds (ETFs) in the sector enjoyed big trading bounces.
One of the biggest ETFs in the space is the PowerShares WilderHill Clean Energy (NYSE: PBW). This fund is pegged to the WilderHill Clean Energy index, an index whose top holdings include Trina Solar Limited (NYSE: TSL), JA Solar Holdings (NASDAQ: JASO), Cree, Inc. (NASDAQ: CREE), International Rectifier (NYSE: IRF) and Broadwind Energy (NASDAQ: BWEN).
If we look at the chart here of PBW, we can see the big surge in the middle of March, a surge caused by the onset of Middle East unrest and the beginning of the spike in crude oil prices. Come April, however, the ebullient buying in the space turned into a sharp selling that took the fund down below its March low. The fund has since fallen to where it was back in September 2010. Even with the big jump in March, PBW is down 15.6% over the past three months, and the fund now has fallen below both its 50- and 200-day moving averages.
Another alternative energy fund that experienced a brief boom and subsequent bust is the Guggenheim Solar ETF (NYSE: TAN). As the name suggests, this fund holds some of the biggest names in the solar industry. Top holdings in TAN include First Solar (NASDAQ: FSLR), SunPower Corp. (NASDQ: SPWRA) and MEMC Electronic Materials (NYSE: WFR).
The chart here of TAN shows a sharp spike higher in March, but again we see a spike that was short lived. The fund sold off in early April, then TAN actually surged again later that month. Since hitting its late-April high, TAN shares have plunged below both the 50- and 200-day moving averages. Over the past three months, all of that volatility resulted in a loss of 17.4%.
The story is somewhat similar in the wind power sector, as represented by the First Trust Global Wind Energy (NYSE: FAN). This fund is pegged to an equity index called the ISE Global Wind Energy Index. Top holdings in this fund include global energy powerhouses Iberdrola Renovables, EDP Renovaveis and Vestas Wind Systems.
Like our two previous examples, FAN saw a big surge in mid March. The fund enjoyed more buying in mid April, but so far in May it has become a victim of some substantive selling. FAN shares recently fell below their 50-day moving average, although shares remain well above their 200-day average. Unlike our other two examples, FAN actually has performed very well over the past three months, climbing 5.1% in the period.
Judging by the rise, and subsequent fall, in these representative alternative energy ETFs, it’s clear that buyers rushed in to take advantage of the oil price spike. When oil came back down, so did the value of alternative energy stocks. Remember that the next time oil spikes again—and the next time crude prices sink.
At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.