Wind Energy Fund
Alternative Energy sources has become one of the fastest growing sectors of the last five years, as global warming has become a stable in the popular culture, and as the governments race to comply with the Kyoto Protocol.
Wind Energy has become one of the most accepted forms of Alternative Energy, especially in Europe which leads the world in production of electricity from alternative sources. However Wind Energy projects require hefty sums of financing and the financial crisis of 2008 has hit the shares of wind energy equipment manufacturers quite hard. Furthermore as Europe leads the world in Wind Technology the European crisis of 2011 has pulled the valuation multiples of these companies to extremely low levels.
†It is obvious that the future of Wind Energy depends greatly on the solution to the European Financial Crisis of 2011. However the end of the crisis is expected to bring back the necessary financing schemes which will bring back even larger Wind Energy installations and growth to the sector, as European governments try to reach their carbon emission reduction targets pertaining to the Kyoto Protocol. As a result, The Wind Energy Fund expects to provide investors with very high returns as the valuation of Wind Energy companies return from 4X-5X EBITDA† to their normal values of 9X - 12X EBITDA.
The Wind Energy Fund will be one of the more passively managed funds. The fund will try to accumulate shares at good entrance levels but once the shares are accumulated there wonít be too much churn. The aim will be to take advantage of a long-term upwards trend rather than exploiting short term moves with the exception of extreme moves in specific stocks.
The Fund will also accumulate a position in US Crude Oil as the persistently high price of oil is a necessary component to the viability of alternative energy sector. This position will also serve as a hedge to reduce volatility and risk in the Fund and is expected to be around 30% - 35% of Fund assets.
June 15thí 12 10:52
I am not sure if Iíll be able to start actively trading this Fund even in the medium-term. The green energy market has shaped up in such a way that the wind sector has some serious disadvantages. The Eurozone problems definitely hurt the sector but it specifically hurts Vestas because it is a Danish company. Also solar energy seems to have taken the lead from wind energy as the more largely used green energy source. Given these fundamentals it might be wise to short some wind energy stocks like Vestas, but that is a very risky trade too. The reason is that these stocks are very undervalued compared to the size of the companies and any Eurozone positive developments might bring about a short squeeze.
Jan 11th, 12 15:54
Seems I could have made some money buying Vestas on the dip but the move in the stock was entirely due to rising European markets. I donít want to make those kinds of short term trades for this Fund. As soon as the market turns, the stock will probably turn down also.
Jan 6th, 12 13:32
The guidance cut by Vestas has caused a huge correction in the price of the stock which is good news for the Fund. However the correction actually came after a similarly large rise in the stock. Also, this is a stock that is in a very strong downtrend, not much liked by the analysts and currently very sensitive to the general market direction rather than its own fundamentals. Therefore I will hold out on buying shares until the market finds its bottom, and the stock gets to move on its own fundamentals.†
Dec 8th, 11 14:12
As with the other passive Funds, I have initiated long bond fund positions for the Wind Energy Fund to take advantage of an expected decrease in bond yields. The positions should remain until European problems are solved, or at least Vestas decreases to levels too good to pass up.
Dec 3rd, 11 11:34
Since this will be a more relatively passive Fund, the level at which the positions are initially accumulated is very important. I do have a general negative bias towards the market until European problems are sorted out, and some form of QE is initiated by ECB. So until then I will hold out on making any substantial trades.
Dec 3rd, 11 11:26
Letís note the general strategy that is planned for this Fund. The Wind Energy Fund will be less fragmented due to few firms dominating the sector. The main emphasis will be on the Danish firm Vestas since it trades at very depressed multiples even though it commands a large share of the market. Also in consideration will be Siemens which supplies a great deal of equipment to the sector. Spanish utilities Gamesa and Iberdrola which also trades at very reasonable multiples will constitute another large chunk as Spain represents the largest wind energy market. The Fund will also dedicate about at least 20% of the Fund to USO as high oil prices are a necessary condition for the feasibility of wind power.