FUND WATCH


High Price to Pay for a Green Fund

Elizabeth Ody

The new DWS Climate Change applies a much broader approach to stock picking than other green-minded funds, but watch out for its hefty fees.



DWS Climate Change fund brings a fresh eye to the green investing arena. Most other green-minded mutual funds either employ screens to filter out companies with poor environmental track records or focus on companies involved in alternative-energy production. Climate Change fund defines its universe far more expansively.

The process begins with a list of more than 1,400 companies that DWS managers believe are engaged in the adaptation to or mitigation of climate change. Co-manager Nicolas Huber sloughs off tiny companies, mainly those with market values of less than $200 million. That narrows the field to about 600 companies that Huber and co-manager Susana Fraguas scrutinize more closely.

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Using both DWS and outside research, Huber and Fraguas try to find companies that will see heightened demand for their products and services as environmental regulations become more stringent. The end result is a portfolio of 80 to 120 companies, each of which the managers plan on holding for five years.

There's little performance history, however. From the fund's inception on September 6 through November 23, its Class A shares (symbol WRMAX) have returned 2.6%, compared with a loss of 1.8% for Standard and Poor's 500-stock index. The various classes of Climate Change fund have drawn more than $20 million in assets so far.

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The fund currently has 34% of assets invested in the U.S. and the rest in developed European and Asian countries, although Huber can stash up to 30% in emerging markets.

Several members of the Kiplinger Green 25 are among the fund's 25 biggest holdings. Among them are Switzerland's ABB (ABB), which makes energy-efficient power transmission equipment, and Johnson Controls (JCI), which makes hybrid vehicle batteries and energy-efficient building-temperature control systems.

Huber is aware of some apprehension about a potential "green bubble." This is where, he says, the fund's broader and more-flexible approach comes in handy.

"Alternative energy stocks, especially solar, are pretty expensive right now," Huber says. "But if you have a broader view of climate change then you see there are so many segments that will profit from it."

DWS seems to have a well thought-out approach to investing in green stocks. But because the fund levies sales charges -- 5.75% up front in the case of the A shares, a hefty annual 12b-1 fee in the case of the Class C shares -- we're reluctant to endorse it.

Acceptable no-load alternatives are Winslow Green Growth (WGGFX) and Guinness Atkinson Alternative Energy (GAAEX).




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