The smartest money in global warming stocks may be scurrying to the exit just when the enthusiasm for alternative-energy companies is at an all-time high, Bloomberg reported on Monday.
DE Shaw, Tudor Investment, Citadel Investment Group, Caxton Associates, SAC Capital Advisors and Pequot Capital Management have all reduced their stakes in solar- power and ethanol producers in the fourth quarter, according to recent SEC filings. Cumulatively, the hedge funds manage about $86bn.
As an investment play, global warming is a bubble and a social short-term craze, Ken Fisher, who oversees $35bn as chairman of Fisher Investments, told Bloomberg.
Hedge funds have turned away from the sector, including solar-and wind-power producers, ethanol and biodiesel makers and fuel-cell manufacturers, as their shares trade at a record relative to earnings.
Speculation that demand for alternative energy will soar has, in turn, sent the industry’s stock soaring. The Bloomberg World Energy-Alternate Sources Index, composed of 27 stocks, has jumped 22 percent this year and is valued at 44 times estimated earnings, up from 28 times in June and about triple the ratio for the MSCI World.
Companies in the Bloomberg U.S. Energy-Alternative Index are even pricier. Based on forecast earnings, their shares are valued at an average of 60 times. Five of the 12 members of the index reported losses in 2006.
“By itself, I don’t know that global warming is a viable investment theme,” said Malcolm Polley, who oversees $1bn at Stewart Capital Advisors. “It’s largely Wall Street’s answer of trying to create something where there really isn’t anything that exists.”
Alternative energy “is all the rage,” said Stuart Schweitzer, New York-based global strategist at JPMorgan Asset Management, which oversees about $1,000bn. “That does not mean that as an investor you’ll be able to make money.”