(The author is a Reuters columnist and the opinions expressed
are his own. For more from John Wasik see link.reuters.com/syk97s)
By John Wasik
CHICAGO May 19 If you care about the
environment, you can emulate Stanford University's move to
remove coal-producing companies from its endowment portfolio by
purging fossil fuel companies from your own investments,
although it will take a customized strategy.
Despite its role in climate change and air pollution, coal
may remain in favor because it's still relatively cheap to mine
and burn compared to alternative forms of energy in most
In recent years, though, coal has hardly been the darling of
the volatile U.S. energy sector. Faced with lower natural gas
prices, a boom in North American oil and methane production and
growing competition from wind and solar power, companies that
mine the black mineral have been suffering in recent years.
The Market Vectors Coal ETF, which tracks an index
of the world's largest coal producers, is down an average 24
percent for the three years through May 16 and off 7 percent for
the past 12 months. The fund holds companies like China Shenhua
Energy Co. Ltd., Aurizon Holdings Ltd. and
Peabody Energy Corp. and charges 0.59 percent in annual
expenses. It doesn't have much competition since it's the only
index ETF to exclusively own coal producers.
If you dislike the idea of holding coal-burning utilities or
producers in your portfolio - or fossil fuel companies in
general - one option is to create a customized fund that eschews
these kinds of companies. For holders of individual stocks, you
could either build a portfolio around "clean-energy" stocks in
wind, solar and alternative technologies, or find a similar
socially responsible portfolio or "clean technology" mutual
The PowerShares Wilderhill Clean Energy ETF, for
example, holds alternative energy companies like Calpine Corp
, Maxwell Technologies, Inc and Gentherm, Inc
. Companies like these specialize in natural gas,
geothermal, solar and energy-conservation technologies. The fund
is up nearly 17 percent over the past 12 months through May 16
and charges 0.70 percent in annual management expenses.
Yet cobbling together such a targeted portfolio on your own
is difficult since most large index funds own fossil fuel
companies. The giant S&P 500 SPDR ETF, for example,
holds ExxonMobil Corp, Chevron Corp. and Peabody
NEAR-TERM DEMAND BULLISH FOR COAL
Until the economics change, coal combustion will dominate
energy production in most places where coal is plentiful,
loosely regulated or easily imported.
According to the U.S. Energy Information Administration
(EIA), U.S. coal consumption is forecast to grow 5 percent this
year, after dipping the previous two years. Production will grow
3 percent in 2015 as "electricity demand grows and natural gas
prices remain well above their 2013 level."
Over the next few years, coal companies are poised to shake
off the recent slump and recover. Production is forecast to grow
4.4 percent this year and a tight U.S. supply has also pushed up
prices of the mineral.
Generally, global economic expansion favors further coal
price increases. The mineral is an essential ingredient of
steelmaking, which is important in developing countries like
China, India, Brazil and most of Africa and the Far East. Some
70 percent of steel production involves coal.
Most of the demand for coal is coming from China. Although
the country is the largest producer of coal for steelmaking, it
needs to import coal to produce electricity.
But tougher environmental regulations, particularly in the
United States, are expected to curtail coal consumption. The EIA
predicts that coal consumption will fall 5 percent next year as
more utilities shut down coal-burning power plants.
The U.S. Environmental Protection Agency will put even more
pressure on the industry when it creates new standards for
mercury, the toxic element released by coal combustion. And with
the Supreme Court's recent ruling upholding the Clean Air
Interstate Rule, which clamps down on interstate coal-related
air pollution, it will be even more difficult for coal-fired
plants to keep operating without expensive pollution controls.
As an individual investor, your actions won't change the
global energy picture. But you can always become an activist and
demand that major institutions from government to universities
not only use clean energy, but develop eco-technologies to
displace coal and other fossil fuels as a source of energy. That
may be the more meaningful gesture that goes far beyond what you
can do with your portfolio.
(Follow us @ReutersMoney or here
Editing by Lauren Young and David Gregorio)