Funds for Green Energy Investors
High oil prices and calls to reduce America's hydrocarbon dependency may have you thinking green. That's green, as in an investment in alternative-energy providers. And you're not just making a political or environmental statement. There's money to be made.
The new Ardour Global Alternative Energy index, which tracks the shares of 74 companies around the globe that are involved in alternative energy, is up more than 30% so far this year despite a setback in the past few weeks. The no-load Guinness Atkinson Alternative Energy fund (symbol GAAEX; 800-915-6566), which launched on March 31, has a 9% loss so far. But that's clearly a matter of timing. The fund is too new to evaluate.
That's not the case with an older fund that looks for opportunities in green power. In fact, the fuss over alternative energy is nothing new, says Maurice Schoenwald, manager of New Alternatives. His fund (NALFX; 800-423-8383; 4.75% sales charge) has been involved in solar and wind power, bio-diesel and ethanol production, natural-gas utilities and fuel-cell technology since 1982. It's performed well so far in 2006, returning 22% through June 2. Not surprisingly, investors have been pouring in the money. Assets have grown from $60 million in December to $95 million today, says Schoenwald.
New Alternatives' longer-term record is checkered, which is also no surprise because investor interest in alternative energy comes and goes. The fund gained 52% in 2000, fell 12% in 2001, and dropped another 30% in 2002 before turning upward in 2003, right around the time when stocks in general began to act bullish. The fund has a three-year annualized total return of 20%. As for the current boom in alternative-energy stocks, it's all a reaction to rising fuel prices, says Schoenwald. "People are disturbed because maybe there isn't going to be oil forever," he says. "And they are correct."
Because energy is a worldwide business, New Alternatives is laden with foreign stocks, which make up 47% of its portfolio. (It had a 35% limit on non-U.S. assets but abolished it.) More than 10% of the fund is in Spain, where you'll find large stakes in Abengoa SA, a conglomerate that produces ethanol, recycles aluminum and generates electricity with solar power, and Acciona SA, which builds hydroelectric, solar and wind power plants, among other construction projects.
Schoenwald notes that New Alternatives is not strictly an energy fund, but a so-called socially responsible fund, with an emphasis on companies the manager deems to be pro-environmental. The fund does not invest in oil, coal, nuclear power and tobacco, or in companies that pollute, test on animals or have labor troubles. "We are willing to sacrifice good investments for honor," Schoenwald says.
And he means it. Three years ago, the fund owned shares of Whole Foods (WFMI) because Schoenwald liked the growth prospects of organic food markets and the company's environmental practices. But he sold the stock because Whole Foods' management had a dispute with workers. In this case, his values hurt fund shareholders. Whole Foods stock has risen 160% since Schoenwald sold in mid 2003. Schoenwald would like to buy shares of Toyota, the leading maker of hybrid cars, but is turned off by its production of SUVs. So, as an alternative, the fund owns Aisin Seiki, a Japanese company that supplies Toyota and other automakers with parts used in hybrid cars.
In the U.S., Schoenwald prefers hydroelectric utilities and companies in the fuel-cell business. One of his top picks is Idacorp (symbol IDA), an Idaho hydroelectric utility with a fuel-cell division. "If the fuel-cell business doesn't work, the hydroelectric end will take care of the company," Schoenwald says. At $35 recently, and with a 3.5% dividend yield, Idacorp is up nearly 15% so far this year.
Things are looking up now at New Alternatives, but it's been a long, strange trip for Schoenwald. When the fund started, he put in $40,000 of his own money to keep it afloat. He tapped "friends who were liberals and environmentalists" for more investments. By 1990, the fund had a couple million dollars in assets. But he and his son, David, practiced law to pay the bills and managed the fund on the side from their offices in Melville, N.Y. By the mid 1990s, running New Alternatives became a full-time gig for the Schoenwalds. The fund's pioneering commitment to alternative energy is impressive. The country's interest in green energy seems genuine now. Just be aware that in New Alternatives or any other fund that emphasizes this sector, erratic performance comes with the territory.
--Thomas M. Anderson