Question: Can you suggest some places to search for good environmental/green energy mutual funds? My REIT (PLD) has plummeted to an unbelievable low and I was thinking of riding it back up, but also wonder if a change to renewable energy fund or some other environmental fund would be a better choice. I listen to the show most every week. Thanks Chris, Kathleen, Carmel CA
Answer: Investor interest in putting money into green mutual funds has been growing in recent years. However, the sector has been hit hard along with the rest of the stock market so far this year. What’s more, the sharp drop in oil prices has put additional downward pressure on the alternative energy and green universe.
For instance, I just looked up some return figures on a handful of the better known green mutual funds and companies. The total return to investors on the Winslow Green Growth fund is -56%, year-to-date. The comparable figure over the same time period for the Calvert Global Alternative Energy Fund is -54%, the Guinness Atkinson Funds -57% and the New Alternative Funds -45%. A number of small alternative energy companies have cratered recently, especially after Verasun Energy, the large ethanol producer, recently filed for Chapter 11 bankruptcy protection. For example, AE Biofuels is down 52% and Clean Energy by -50%, year to date.
Still, it’s an intriguing investment play. I can’t imagine that the enthusiasm for green companies and alternative energy will wane over the long haul, especially once global growth picks up and worries about climate change move back to the fore. Indeed, President-elect Barack Obama said his Administration would “invest $15 billion a year over the next decade in renewable energy” in a recent Wall Street Journal Op-Ed piece. .
As an aside, the biggest rap against socially responsible investing is the belief that marrying personal values to an investment portfolio cuts into returns. In other words, doing good and making money don’t mix. I don’t agree. A number of academic studies suggest there’s little difference between pooling money to make money and pooling money to make money and express values. This came home to me in a series of papers by Meir Statman, a finance economist at Santa Clara University. Among his conclusions, the risk-adjusted return on socially conscious index funds (yes, I still favor index funds) is roughly comparable to the Standard & Poor’s 500 index. The performance of actively managed socially responsible mutual funds is about equal to their conventional actively managed mutual fund peers.
One note of caution: Socially responsible funds tend to have high fees that cut into returns. For instance, the mutual fund rating service Morningstar says the levy on green mutual funds range from 1.25% to 1.98%. “We’re generally wary of pricey funds because high fees are one of the most powerful predictors of future underperformance,” writes Michael Herbst, mutual fund analyst with Morningstar.
Two good places for additional research are socialinvest.org and socialfunds.com.
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