PBD - PBD: Another Clean Energy ETF With Non-Financial Focus

Summary

• PBD is a clean energy ETF with an inception in 2007.
• Since inception, it has lost 14%, as compared to a return of 219% in the S&P 500.
• The ETF is based on an Index designed and managed by WilderHill using their "Intelligent-Indexing" method.
• That method emphasizes clean energy, broadly-defined, as opposed to traditional investment analysis, and so no RIAs are on the committee.
• The approach only seemed to produce gains around the 2020 presidential election but has otherwise produced losses.

The Invesco Global Clean Energy ETF ( PBD ), the "Fund," is based on the WilderHill New Energy Global Innovation Index (the "Index").

According to Invesco:

The Fund will generally invest at least 90% of its total assets in securities that comprise the Index as well as American Depository Receipts ("ADRs") and global depositary receipts ("GDRs") that represent securities in the Index. The Index is comprised of companies engaged in the business of the advancement of cleaner energy and conservation. The Fund and the Index are rebalanced and reconstituted quarterly."

Performance

Since inception in mid-2007, PBD has lost 14.1% of its value. That compares unfavorably to the S&P ( SPY ) return of +219.3 %.

The price of PBD spiked around the 2020 U.S. presidential election and for about six months into the Biden Administration. I believe that reflected a shift in investor sentiment regarding clean energy and was unrelated to actual earnings of the companies in the portfolio. PBD gave back most of the gain and ended the period in negative territory.

Moreover, the Maximum Drawdown ("MD") has been 79%. That compares unfavorably to the S&P MD of 59%.

Over the past year, PBD has a total return of -35.48%. During that same timeframe, the S&P 500 (SP500TR) lost 16.23%.

Expenses and AUM

The Fund charges an expense ratio of 0.75% and has about $215 million of assets under management ("AUM").

Seeking Alpha has graded the expense ratio a "D" in its ETF Grades.

Index

The WilderHill New Energy Global Innovation Index ((NEX)) captures solutions to climate change worldwide, and is comprised of companies mostly outside the U.S. whose innovative technologies and services focus on generation and use of clean energy, lower CO2-renewables, conservation and efficiency. These are companies relevant to solving climate change, whose technologies help reduce emissions relative to traditional fossil fuel use. Since 2006, it has been the first and best-known Index for this theme.

For a complete list of holdings, see NEX website .

WilderHill New Energy Finance LLC

In my article , PBW: Clean Energy ETF With Non-Financial Focus, I discussed my observations about WilderShares, LLC. ("Wilder") other financial index, ECO, I quoted the investment process described by Wilder, as well as reviewed the investment credentials of ECO's Index Advisory Committee.

I found that they pursue "intelligent-indexing," which combines "analysis-based stock selection with sector weightings, according to technological and ecological considerations…. We weight the Index sectors according to importance and technological relevance, not views about individual stocks."

It appears that WilderHill New Energy Finance LLC uses the same "intelligent-indexing" process for NEX:

We subscribe to academic modern portfolio theory, and believe that for NEX the advantages of an indexing approach are persuasive. We pursue 'intelligent-indexing' and analysis-based selection of stocks and sector weightings, which are reviewed according to both qualitative & quantitative methodology. We normally don't change Index composition more often than at Quarterly Index rebalancing. This is a passive basket. Thus an aim is to capture this evolving, emerging theme even as it may at times expand or contract. We don't try to 'beat the market' -- nor try to pick 'under-valued' stocks.

We don't take defensive positions in the Index when markets decline, appear over-valued, or when NEX is experiencing unusually-strong volatility. Rather than select components worldwide on financial or market data alone, we robustly review clean energy broadly conceived, and consider stocks & sectors on technological, environmental, and their relevance-to-the-sector criteria such as preventing pollution and decarbonization. We judge our performance by how well the passive Index tracks movements of global new energy innovation -- down and upwards -- and thus we anticipate very significant ongoing volatility and change in this sector.

I reviewed the credentials of members of the NEX ADVISORY COMMITTEE. It does not appear that any of them have a Registered Investment Advisor ("RIA") credential.

Rebuttal

In an article , dated November 30, 2020, The Massive Run In The Invesco Global Clean Energy ETF Can Continue , the author stated:

Any correction in the PBD ETF would likely create a buying opportunity for the future as technology, and climate change will continue the trend towards clean and renewable energy sources. I view the PBD as a long-term hold.

The first target is at the late 2007 $38.10 high, but the potential for far more substantial grains are rising as the United States adopts a greener path for energy's future.

However, since the article had been published, the share price has declined by 40+%. I think what the article failed to do was analyze the basis of the Index on which it relies along with the advisor's process for choosing Index components.

Conclusions

PBD suffers from the same problem as PBW; the selection of specific companies is based on " clean energy broadly conceived, and consider stocks & sectors on technological, environmental, and their relevance-to-the-sector criteria such as preventing pollution and decarbonization. " And no one on the Index Advisory Committee appears to have an RIA background or credentials.

PBD has posted a net loss from 2007. Its Maximum Drawdown of 79% eliminates it as a candidate for long-term investment, as far as I am concerned. As I concluded in the article about PBW, I have greater confidence in SMOG as a long-term clean energy investment.

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