Shares of alternative energy companies continue to be hard hit given worsening financial and economic conditions but there is strength and support underlying investments in the sector. So says Walter Nasdeo, managing director at Ardour Capital Investments, a pioneer when it comes to alternative energy equity research and investment banking.
Fair, balanced and independent equity research, coupled with timely, accurate and comprehensive financial disclosure, is prerequisite to establishing healthy, sound equity markets and a level playing field in which investors large and small can participate. In addition to its proprietary research, Ardour is playing a vital role in this regard, having established a line of alternative energy indexes in partnership with S-Network Energy Technologies.
Triple Pundit interviewed Ardour Capital managing director Walter Nasdeo to gain some insight into the company’s business, as well as the recent performance and future prospects for alternative energy companies.
Recent Performance No Guarantee of Future Returns
There are two aspects to Ardour’s involvement in alternative energy sector finance broadly speaking: investment banking, including equity research: and Ardour Global Indexes LLC, which creates share indexes.
“The two ends of the business are complementary,” Nasdeo told Triple Pundit. “The validity of the index is heightened by the degree of expertise and amount of research we can produce in-house…They mirror each other in their growth and construction.”
In addition to providing an accurate, comprehensive and easily accessible means of gathering investment information and tracking performance of the fast-growing universe of alternative energy shares, the indexes are used by fund managers to track performance and create exchange traded funds (ETFs).
For instance, New York-based fund manager Van Eck Global based its NYSE-traded Market Vectors Global Energy Index (NYSE:GEX) – launched in May last year – on Ardour’s Global Energy Index (Extra Liquid) (AGIXL). Most recently, Ardour and Van Eck followed this up with Earth Day launch of their respective Ardour Solar Energy Index (SOLRX) and Solar Energy ETF (Amex:KWT).
Ardour’s work in alternative energy indexing has helped pave the way for its growing proprietary research and investment banking business. “The investment banking side of the business is going full bore…It is an extremely active space right now…We work in the US, in Asia and quite a bit in Europe, that side of the business is very active and growing quite rapidly,” Nasdeo commented.
Reading the Alt Energy Tea Leaves
Nasdeo’s reading of present stock market conditions and prospects are reflected in the performance of Ardour’s indexes and related ETFs. Down 20.41% year-to-date as of March 31, the index has gained 27.95% in the past year and 29.15% on an annual basis over a five-year period. Since its inception in May 2007, the amount of capital invested in Van Eck’s GEX ETF has grown from $12 million to more than $300 million.
“We’ve already seen as far as stock prices go already seen a lot of negative press and news – on ethanol specifically and biofuels in general, even more specifically corn-based ethanol…I think the stocks themselves have suffered dramatically over the last 12-14 months. I don’t know that there’s a lot of significant downside left in those stocks. The thing I would say is the most interesting area to look at is that companies are getting bigger and getting more liquid, which is good news for investors looking to gain exposure and build a portfolio.”
Nasdeo also offered alternative energy investors a word of caution and advice. “On the other side of it you should look at areas you understand; you should be cautious if you don’t have an understanding of the basic science behind it; some of this is right out there on the frontier in terms of technology…It can be dangerous and can be very frustrating to extrapolate out expectations…which is why an ETF or unit investment trust makes good sense.”
Longer Term Fundamentals
While alternative energy sector shares are suffering to an even greater degree than broad market averages so far this year, Nasdeo sees underlying strength and support over the long term.
“It’s more than RPS (Renewable Power Standards), cap-and-trade and politics – whoever wins the election, Democrat or Republican, we will get more support for alternative energy than we get now…
“State initiatives will continue to develop and grow but also there’s a grass roots community desire for a lot of this stuff…Also if you look back where we were in the late ‚Äò90s many companies with a lot of hype but little or no profitability. Now, we’re starting to see companies operating at a more sustainable level…and you have all of the macro political drivers – the price of a barrel of oil; issues of oil transport and refining.
“There’s so much fragility along the whole distribution continuum it makes it difficult to have confidence in the structure of the energy delivery system. I’m certainly not saying that coal and oil are going to go away tomorrow, but alternative power makes a lot of sense in particular areas. It’s not a blanket solution.”
Just as energy production and distribution would benefit from diversification, so would investors in the sector, according to Nasdeo. “Diversification is very important within the sector for the individual investor – you can get global and technological diversification from the index [Ardour's Global Alternative Energy Index],” he concluded.