Green Alpha was able to navigate a choppy Q1 2015 with quarterly returns of 5.47% for our mutual fund, NEXTX, 3.51% for our Green Alpha Next Economy Index, and 8.81% for our Sierra Club Green Alpha Portfolio. Our Green Alpha Growth and Income Portfolio was up 4.95% and the Green Alpha Global Equity Income Portfolio, co-managed with Tom Konrad, returned 4.81% in Q1. In addition, these last two are on pace to generate approximately 3% and 4.5%, respectively, in dividend income for 2015.
In the general markets, investors spent the quarter reacting to the countervailing forces of easing in Europe, the March Federal Reserve meeting, a perceived slowdown in many sectors of the U.S. economy, extreme winter weather on the East coast, worsening drought on the West. U.S. trade was reduced by the West Coast trade dispute in Long Beach, and of course the Euro trading at a twelve year low hurt margins for U.S. exporters.
Hiding in plain sight, meanwhile, were several macroeconomic indicators that Next EconomyTM firms continued in Q1 to gain market share from their sector and industry predecessors:
- Warren Buffett revealed that Berkshire Hathaway has become America’s largest single owner of installed wind and solar generating capacity, and in Q1 sold its entire US$ 3.7 billion stake in Exxon Mobil, noting simply that he perceived better opportunities elsewhere.
- Bloomberg noted that in terms of electrical generation capacity, solar and wind in 2014 added more than natural gas, coal and oil combined.
- The Bank of Abu Dhabi noted that in Saudi Arabia, solar energy has become competitive with oil at US$10 per barrel, and indicated that it was focusing growth investing potential in renewables going forward as a result.
- Deutsche Bank wrote that they expect solar to be the global economy’s primary source of energy by 2030 – just 15 short years from now – as solar prices have fallen 75% in the last five years and are expected to fall another 40% in the next five.
- The Rocky Mountain Institute indicated they believe that Northeast utilities could lose more than half of residential revenues by 2030 as homeowners continue to install solar at a rapid pace and begin to use home battery storage systems.
- NextEra Energy negotiated a power purchase agreement in New Mexico to sell solar electricity for 4.2 cents per kWh, far cheaper than the local competition from natural gas fired electricity generation at 6.6 cents per kWh.
- The Economist stated “Renewables are no longer a fad but a fact of life, supercharged by advances in power storage…Along with worries about pollution from other fuels, the biggest boost to solar – both in the rich and emerging world – is its plummeting cost.”
As a result of these and other revelations, including the results of their own meta study, Morgan Stanley wrote that “ultimately, we believe that sustainable investing is simply a smart way to invest, and our review shows preconceptions regarding subpar performance are out of step with reality.”
Since founding Green Alpha, we have continually analyzed world events and economic trends to see how Next Economy sectors such as renewable energy, water, advanced materials, robotics, the Internet of Things, and other themes are evolving. In this economic transition of energy and material production and consumption, there are many constantly innovating firms and ideas’ but one thing is continually clear: in the next few years, trillions of dollars will be invested in efficient, innovation-driven tech, in solutions to the systemic risks with the power to disrupt the global economy, and in other mitigations and adaptations to the worst outcomes of climate change and strains on resources (like the global droughts) worsen. We remain far less concerned with the quarterly ebb and flow of short term events and figures and more concerned with fundamentals that are true for the very long term, if not always.
A note on fossil fuel divestment
As the negative consequences of carbon emissions, other toxic emissions, extracting, refining and transporting of fossil fuels becomes clear, an increasing number of colleges and universities as well as foundations have raised the issue of fossil fuel divestment. This year, Green Alpha has been invited to many campuses across the country to provide insight into the debate, sometimes with favorable results, sometimes not. While students, professors and others have been ramping up pressure to divest, the ultimate decision makers, Trustees and Regents, are staying quiet, usually not engaging much if at all with divestment groups. We find it interesting that when they do engage, they tend to ignore leading market indicators like those listed above, and rather say they’d prefer not to be political with their investment decisions, as though the decision to remain in fossil fuels in the face of what is now an obvious transition was not in itself a political position.
The now clear momentum of renewable energy growth at the expense of fossil fuels’ market share makes it clear to us that long-term fiduciaries with perpetual horizons should be divesting of fossil fuels as of yesterday. We believe that science, being as objectively true and as epistemologically powerful as it is for the moment weak politically, means the transition is - politics for the moment notwithstanding - inevitable. Ultimately, pure economics combined with the requirements of avoiding system failure will prevail, and not only will endowments divest from fossil fuels, they will embrace the economics of indefinite sustainability. In terms of both potential business development and portfolio performance, we remain optimistic about the prospects for Next Economics and the portfolios that reflect them.
Garvin Jabusch is cofounder and chief investment officer of Green Alpha®Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's economics blog, "Green Alpha's Next Economy."
This material is for informational purposes only and is not an offer to sell or the solicitation of any offer to buy any security. Performance data quoted represent past performance, which does not guarantee future results. All returns are total returns net of fees.
To obtain a prospectus for the Shelton Green Alpha Fund (NEXTX), visit www.sheltoncap.com or call (800) 955-9988. A prospectus should be read carefully before investing. Shelton Funds are distributed by RFS Partners, a member of FINRA and affiliate of Shelton Capital Management.
Green Alpha is a registered trademark of Green Alpha Advisors, LLC. SIERRA CLUB is a registered trademark of the Sierra Club.