Even in the midst of an economic downturn, cleaner and costlier energy makes more sense than does the dirty and cheap stuff, according to David Kurzman, manager of the Leuthold Global Clean Tech Fund Ticker:(LGCTX).
While Mr. Kurzman admits that the current oil leak in the Gulf of Mexico won't be enough to drum up massive public opposition to fossil fuels, he still likes the investment performance potential of clean or alternative energy companies.
“We're going to be burning fossil fuels for a long time, but when [clean energy technology] is growing off such a small base you can expect to sustain 20% or 30% growth rates for a long time,” he said.
The fund, launched in July 2009, has so far attracted just $25 million, and it is somewhat of an anomaly for Leuthold Weeden Capital Management.
The fund's fundamental bottom-up strategy, which Mr. Kurzman brought over from a hedge fund he managed, is unique from the rest of the firm, which manages $4 billion in a top-down quantitative style.
The general objective of the fund is to tap into the growth potential of “any technology or service that reduces human impact on the planet,” he said.
To qualify for the fund a company must first derive at last 50% of its revenues or profits from clean technology.
On a fundamental basis, Mr. Kurzman also requires companies to have at least 20% revenue growth, be profitable and generate free cash flow.
He has identified almost 500 companies worldwide that fit his initial screens, and he estimates the total market cap of those companies to be around $900 billion.
An example of a company in the clean tech space is Cree Inc. Ticker:(CREE), a company that develops and manufactures light emitting diode products.
Another example is Tesla Motors Inc. Ticker:(TSLA), a newly-public maker of electric cars.
After more than five years in development to adapt some existing technology such as laptop batteries for use in cars, Tesla started selling cars last year.
With a $110,000 starting list price, Tesla isn't expected to be a mass production car-maker. Still, Mr. Kurzman likes the “pedigree and innovation” of the people running the company.
“That's the kind of thing going on in clean tech that has the potential to change the way we think about clean tech,” he said.
On the other hand, a company like General Electric Co. Ticker:(GE)., which manufactures wind turbines and has other clean tech operations, won't make it into the fund.
“Clean tech is almost a rounding error with a company the size of GE,” Mr. Kurzman said. “We don't invest much in those kinds of companies, but we want to keep an eye on them because they may buy some of the companies we own.”
The fund is designed to maintain at least a 40% allocation to international stocks.
In terms of outlook, Mr. Kurzman said the global economic downturn has made clean tech companies — like all companies — “get lean quickly, and that will help make their year-over-year numbers look better.”
Mr. Kurzman remains bullish on clean tech, despite acknowledging a muted enthusiasm from consumers in the midst of a recessionary cycle.
“Consumers don't have to make a conscious decision to use clean technology because we're already paying for it as part of our electric bills,” he said. “By 2013 we won't need incentives anymore for solar technology, because large solar farms will be cost effective and generate positive rates of return without the incentives.”
One of the companies he sees leading the way in this area is First Solar Inc. Ticker:(FSLR), a low-cost maker of solar modules.
“The short-sellers beat up on this stock because they saw the solar market as commoditizing,” Mr. Kurzman said. “But when an industry is commoditizing you want to be in the best, lowest-cost provider.”
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