I?m sure you all spent the better part of last January explaining to your clients that they should be pouring all of their money into alternative energy, social media, and biotech ETF?s. What! You didn?t? You obviously failed to get the memo. Well, neither did I.
Yes, I know this sounds like the makeup of the Sierra Club Pension Fund, if such a thing exists. Take a look at the top performing non leveraged ETF?s in 2013 and you will see a list that is dominated by these peripheral sectors, many of which were close to bankruptcy only a year ago. Who knew? The explanations for success vary with each industry.
Alternative energy is the easy one to understand, which I have long regarded as a cheap call option on the price of oil. The rising price of Texas tea boosts the breakeven cost of alternatives, and it jumped from $86 last December to as high as $112.50 last month. This enabled many companies to move well into profitability for the first time. Costs have imploded, thanks to huge supply of solar cells coming out of China. The rocket fuel came when the administration imposed punitive duties on below cost Chinese exports.
As a result, solar energy is now cheaper than buying electric power from the local grid, especially in the Southwest, where the sun shines, with bills dropping below 8 cents per kWh. I have flown over the Southern California deserts in a small plane to inspect some of these plants and they are truly gargantuan, stretching on for square miles.
They are helped by a Golden State law requiring that 30% of all power be obtained from alternative sources by 2020. Some 30 other states have passed similar legislation, with an additional six providing voluntary guidelines. This is in addition to 67 foreign countries with such mandates.
Biotechnology is an easy sell, and is why the Health Care Sector (XLV) is one of my favorites to play in the wake of any settlement of the Washington shutdown. Obamacare is about to deliver 30 million new paying customers to the industry. Those who already have health insurance coverage are aging and getting sicker at an unprecedented rate. The obesity epidemic helps, the result of our national addiction to cheeseburgers.
The rate of technological development is accelerating far beyond anyone?s imagination, throwing off ever more big ticket, highly profitable products. Much of this is going on in the San Francisco Bay area within sight of my office. Some of these cures cost $100,000 a year, for life. And guess what? Consumers in increasingly wealthy emerging nations like to stay healthy as well.
The social media boom is the riskiest, and most speculative, of this list of great performers. You would think investors would be wary in the wake of the Facebook (FB) IPO debacle. In fact, CEO Mark Zuckerberg, engineered one of the greatest investors relations turnarounds in history, and the shares finally responded, more than doubling. It turns out that the company really does make money after all, lots of it.
Keep in mind that this year?s homeruns often become next year?s strikeouts, so I wouldn?t be chasing these up here.
TOP 10 ETF?S OF 2013
Guggenheim Solar ETF (TAN) +130.8%
Market Vectors Solar Energy ETF (KWT) +93.4%
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) +82.4%
Market Vectors Global Alternative Energy ETF (GEX) +66.8%
The PowerShares Wilderhill Clean Energy Portfolio (PBW) +62.5%
The First Trust ISE Global Wind Energy Index Fund (FAN) +55.7%
The Market Vectors Biotech ETF (BBH) +55.7%
The Global X Social Media Index ETF (SOCL) +57.3%
The PowerShares Dynamic Biotechnology & Genome Portfolio (PBE) +56.9%
The PowerShares Gold Dragon China Portfolio (PGJ) +57.2%