LOS ANGELES, CA - August 13, 2008 - Paul A. Woods, manager of the Odyssey Clean Energy Porfolio, named the Top Gun money manager in the Informa Investment Solutions database (formerly Mobius) for the two years ending 3/31/08. In the second quarter of 2008, a merger will make this the largest database in the U.S. covering over 2,000 professional money managers and over 10,000 investment portfolios.
Selectivity Pays Off for the Odyssey Clean Energy Portfolio in Q2 2008
In the second quarter of 2008, broad stock market averages were down as investors struggled with high energy and food prices, a meltdown in real estate, and declining corporate profits. As a result, most broad measures of the stock market showed a decline during the quarter. However, higher oil prices also focused attention on the need for alternatives and investors targeted the segments of alternative energy most likely to play a major role in solving this problem. While the shotgun approach to alternative energy investing produced a flat quarter, a more selective approach was again rewarded. Investors know that some segments of alternative energy will never become economically viable while others will change how we live by offering a cheaper and cleaner solution than fossil fuels. These technologies are the focus of the Odyssey Clean Energy Portfolio.
The Track Record
Investors know that quarterly returns can fluctuate and a longer performance record is more important. From this perspective, the Odyssey Clean Energy Portfolio is establishing a track record that has few rivals. It was one of the first portfolios to be invested entirely in clean energy stocks traded on the major exchanges and was opened to investors on 12/31/05. From inception, early investors in this portfolio have more than doubled their money while a broad stock market index such as the S&P 500 produced a compound return of just under 3% during the same period. As you can see from the above, the Odyssey Clean Energy Portfolio has also dramatically outperformed its benchmark. It was the top performing equity portfolio in 2007 in the eVestment Alliance database, which was the largest database of investment advisors in the U.S at the time.
When is comes to clean energy, the most rapidly growing segment by a wide margin is solar. World solar cell production grew by almost 40% in 2006, while U.S. shipments increased by over 50%. For many of these companies, their biggest problem is meeting demand and some have several years’ worth of orders.
Even politicians on the far left who rarely have anything good to say about corporations or capitalists have blessed these companies, and most are calling for greater “investment” here. Many states will pay part of the cost of purchasing one of these systems and the Federal government will also chip in some incentives. Meanwhile, these companies have a miniscule share of what is a huge potential market.
Why Solar?
The major alternative energy technologies include biofuels, hydrogen & fuel cells, wind turbines, and solar. Of these, solar panels are by far the cleanest and safest method of power generation. In addition, they don’t require new infrastructure, generate power at the intended site, can be connected to the existing electricity grid, produce maximum power during periods of peak demand, require little maintenance, and can last up to 45 years.
The biggest issue for this industry is that solar is still a very expensive way to produce electricity. Without government subsidies, demand would be a small fraction of what it is now. However, manufacturing economies of scale are steadily reducing the cost. The rule of thumb, based upon decades of history in Japan, is that costs decline by around 20% every time production doubles. As a result, the most rapidly growing solar technologies have the best chance of producing electricity for a competitive price in the shortest period.
The Market
Although solar cells were developed about 50 years ago, high costs limited their use for many decades. As costs gradually came down, solar became cost effective for some remote locations not covered by the electricity grid. As costs came down further, solar began to make sense in countries with high electricity generation costs and in growing third world countries that had a constant problem with power reliability and availability. Add expanding subsidies because of concerns over climate change in some parts of the world, and demand increased further. Because of historically high power costs and the willingness to provide generous incentives, Japan and Germany are currently the largest global producers of solar power.
The United States is currently the world’s third largest producer even though it has more sunshine and real estate than Germany and Japan. A leftward shift in state and national politics in the last few years has produced more solar incentives, and this technology is currently gaining momentum. In 2006, shipments in the U.S. increased by over 50% while world production rose by about 40%. Although this growth is from a very small base, the current rate is still significantly higher than other clean energy technologies.
According to industry sources, revenues are expected to increase to by 23% annually to 2010. Given current order rates, this expected growth rate of 23% may turn out to be conservative. Even if these forecasts pan out, solar will still account for less than 1% of overall electricity production in the U.S in 2010. However, once it becomes competitive without subsidies, solar will be poised to take a much larger share of the market for electricity. This is now around $275 billion in the U.S. and several times that on a global basis www.eia.doe.gov.
Subsidies
Solar panels are still too expensive and most still have relatively poor efficiency (the amount of sunlight converted to electricity). As a result, subsidies are required to make the economics work for most potential buyers. Leaving aside the ethical issue of requiring taxpayers that decide not to install solar panels to subsidize those that do, the most important consideration when it comes to subsidies is politics, not sunshine. At the state level, an abundance of liberal politicians is more important than an abundance of sunshine, which is why you’ll find more solar panels on roofs in New Jersey than Arizona.
The clean energy tech blog was created to evaluate industries and companies that produce energy without using fossil fuels. The blog will eventually include an evaluation of solar, ethanol & biofuels, hydrogen, fuel cells, wind turbines, electric vehicles (EVs), plug-in hybrids (PHEVs), and hybrid electric vehicles (HEVs). Industries or companies involved in helping to reduce the demand for fossil fuels such as smart meters or software that reduces energy demand may also be discussed in future articles.
All posts are from an investor's perspective. Investors understand that economics make or break new industries; an appeal to save the planet from global warming or climate change by investing in these technologies will not be found here.
Paul is the President, Chief Executive Officer, and Chief Investment Officer of Odyssey Advisors, LLC. He has been involved professionally in the investment management and research analysis of common stocks since 1971. His responsibilities currently include the management of the equity portfolios at Odyssey Advisors.
Before co-founding Odyssey Advisors, LLC, he was a senior portfolio manager at two major national financial institutions and earned the distinction of being the top performing equity portfolio manager nationwide for both organizations. He was also one of the youngest Managing Directors at Security Pacific National Bank when he was named President of one of their investment subsidiaries. Before becoming an equity portfolio manager, Paul spent 12 years as a securities analyst covering a broad range of industries.
Paul is an angel investor, writer, and advisor to a financial education and media company dedicated to educating novice investors about investing. He has written and published a multitude of articles on investing in general and clean energy in particular and has been widely quoted in national and international publications. A native of California, Paul graduated with an M.B.A. degree in Finance from the Marshall School of Business at the University of Southern California in Los Angeles.
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About Odyssey Advisors LLC
Odyssey Advisors maintains a database of publicly traded companies that derive most or all of their revenues from clean energy. The Odyssey Clean Energy Portfolio produced a return of 139.58% after fees in 2007, which made it the top performing professionally managed equity portfolio in the largest database of investment managers in the U.S. To learn more please visit odysseyadvisors.com.
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A leading investors guide to clean energy technologies; alternative energy, clean energy stocks, fossil fuels, solar, ethanol & biofuels, hydrogen, fuel cells, wind turbines, electric vehicles (EVs), plug-in hybrids (PHEVs), and hybrid electric vehicles (HEVs), and smart meters.
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