Ten Clean Energy Stocks for 2013

19 january 2013

Every year since 2008, I’ve published a list of ten (or eleven in 2012) clean energy stocks I expect to do well over the coming year. The list is intended as a model portfolio which could be used by a small investor looking to avoid the relatively high costs of clean energy mutual funds, most of which have expense ratios around 2%, in addition to the trading costs they incur with fairly high turnover ratios.

My list also reflects my belief that the best returns and least risk in clean energy stocks are to be found in relatively boring companies involved in using energy and resources more efficiently, rather than from the sexier but less cost effective renewable technologies such as solar manufacturing.  Rapid price declines have served to make solar an attractive investment in many places given current subsidies, but the industry remains vulnerable to subsidy cuts.

This belief has served me and readers well.  An equally weighted portfolio of my ten stock picks has beaten the clean energy ETF I’ve used as a benchmark for each of the last four years, often by a substantial margin (see chart.)  The benchmark has changed from year to year, but, following industry best practice, I’ve chosen the benchmark at the start of the year so readers know I am not retroactively inflating my relative results by choosing a poorly performing benchmark in any given year.

In 2013, I will be sticking with the same benchmark I’ve been using for the last three years, the Powershares Wilderhill Clean Energy ETF (PBW), which is the most widely held and liquid clean energy ETF and hence likely to be the best indication of the results of the average clean energy investor.  Since I tend to favor small and micro-cap companies, I also use the small cap focused iShares Russell 2000 Index ETF (IWM) to track my portfolio’s performance against the broad market.