Clean Energy Redux

May 10, 2006

Nasdaq and Clean Edge team up to develop a new clean energy index, tracking one of the hottest sectors of the market. Is it different from Wilderhill?

The Nasdaq continues to aggressively expand on the index front. The stock exchange has joined up with the environmental research group Clean Edge to develop a new index designed to track the performance of clean energy companies on the U.S. market.  The sector has been red hot lately, as strong oil prices have heightened investor interest (and improved the economics of) alternatives energy sources like solar, wind, fuel cells and distributed power generation.

"This index will bring much needed attention, focus and definition to a sector that is already playing a lead role in addressing the global energy crisis," said NASDAQ Executive Vice President John Jacobs. "It is fitting for NASDAQ and Clean Edge to offer this important index, as we promote innovation, forward thinking and high technology ─ traits that characterize the companies in this new index."

The index will be called the NASDAQ Clean Edge U.S. Index, and will be officially launched on May 18.  One quirk for a Nasdaq-branded index - and this is something we can expect to see more of from Nasdaq in the future - is that the index includes ten components that are listed on the New York Stock Exchange.

The Nasdaq made a major investment in its indexing technology last year, launching an index platform capable of calculating and disseminating an infinite number of indexes on a real-time basis.  They're looking to capitalize on that investment and expand aggressively in this space, even if it means including companies listed on other exchanges.  (The Nasdaq would certainly point out that 37 of the index components are listed on the Nasdaq, as a sign of where this industry is concentrated.)

Compared To Wilderhill

The new index will go head-to-head with the dominant clean energy index on the market today, the Wilderhill Clean Energy Index, which serves as the basis for the eponymous PowerShares exchange-traded fund (ETF). That ETF (ticker: PBW) launched in March of 2005, and already has over $800 million in assets.

The two indexes are similar, but not identical. For one, the two indexes share only about two-thirds of their components.  But the bigger difference lies in how the indexes weight those components.  The Wilderhill Clean Energy Index follows a modified equal-weighting methodology: It weights different sectors in the alternative energy space based on their "importance and technological relevance," and then uses and equal-weighting methodology for the individual components within each sector .  In contrast, the Nasdaq Clean Edge Index follows a more traditional modified market cap weighting.

Nasdaq says that it is in discussions with providers about ETFs, index funds and possible derivative products (futures, options, etc.).

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