Clean-tech stocks have been public market players for a couple of years and the theme for 2007 was the entry of green funds. Every major fund manager is adding one of these to fill out the prospectus. It’s great news, because it will bring awareness of green investment opportunities to the public and billions of new dollars to environmentally friendly companies.
This development will push stock prices higher, creating a positive feedback loop for investors and publicly traded companies. The financial markets could indeed be the impetus for laggards to green their businesses. When they see big money pouring to their more enlightened peers, they may finally decide to clean up their acts. On the downside, it means heavy competition for the handful of pioneer green funds that got the industry off the ground in the first place.
One such pioneer is Winslow Asset Management, which manages the small cap Winslow Green Growth Fund (WGGFX). Until the huge influx of new publicly traded companies, there weren’t enough pure green companies to invest in, so they included greener conventional companies. Now, there are hundreds of companies to choose from and many of the original green stocks—like Danish wind player Vestas and natural grocer Whole Foods—have grown too big for a small cap fund.
In response, Winslow launched the Winslow Green Solutions Fund (WGSLX), which focuses on mid-cap companies (market cap $1 to $10 billion). It invests solely in companies that provide solutions to environmental problems across all green sectors: clean energy, water management, resource efficiency, sustainable lifestyle, environmental services, green transportation and green building. The fund can invest up to half the portfolio in companies outside the U.S.
The Calvert Global Alternative Energy Fund (CGAEX) focuses solely on renewable energy stocks, and invests in companies of all sizes around the world. Its holdings are an impressive list of well-known leaders. Exchange-traded funds (ETF), open-ended investment companies which can be traded at any time during the day, are also getting more environmentally friendly. The Van Eck Global Alternative Energy ETF (GEX) joins the WilderHill New Energy Global Innovation Index (NEX), the other global ETF.
Here Come the Majors!
HSBC, the world’s third largest bank, launched the largest global warming index to date, tracking 300 companies worldwide that benefit from solutions to climate change. HSBC’s goal is to have $1 billion under management by the end of next year. Based on back testing since January 2004, the Index returned 125 percent compared to 55 percent for the MSCI World Index. The HSBC Climate Change Fund is the first fund based on the index. HSBC’s index challenges the KLD Global Climate Change Index (KLD), which holds 100 companies and is managed by a true pioneer, KLD Research.
Several other climate change funds have been launched in Europe from major asset managers such as Schroders, F&C and Deutsche. Interestingly, they focus on companies that can help the world adapt to climate change, in addition to mitigating it. Standard and Poor’s launched the S&P Global Clean Energy Index and the S&P Global Water Index.
The Allianz RCM Global EcoTrends Fund (AECOX) invests in clean energy, waste management/recycling and water. It’s based on the pioneering Impax Environmental Technology (ET 50) Index, which consists of the 50 largest pure-play greentech companies from around the world.
An interesting twist on green investing is marketing directly to Democrats. The Blue Large Cap and Blue Small Cap Fund portfolios consist of companies that display core values of environmental sustainability, community participation and respect for human rights. Company political contributions must demonstrate a commitment to these values. But a look at the top 10 holdings doesn’t show a recognizable group of sustainability leaders.
The Spectra Green Fund advocates a shades-of-gray approach. It first looks for growth companies and then evaluates them on sustainability factors. Unlike many green funds that avoid resource-intensive companies, Spectra invests in companies like Cameco, which uses stringent environmental management in uranium mining. Pure green investors will likely want to stick with the pioneers: Winslow, Calvert and KLD, although the others are worth a look. Don’t forget to compare whether a fund has an up-front load. Also check management fees, companies held and, of course, performance!