Green Investing is the Next Big Thing
Call it greentech, cleantech or eco-investing. By any name, making the world cleaner offers huge investment opportunities.
Christiana Wyly is only 25, but she has already determined that her life's mission is to use her investments to help preserve the planet and to persuade other young people to do likewise. Kelly Sheehan and Joshua Martin are banking on their environmentally friendly mutual funds to secure not only their retirements but also their soon-to-be firstborn child's financial and physical health. Jennifer Woodruff invests only in stocks and funds that pass environmental muster.
These four people, all young, educated and sincere, haven't gone green just because they're idealists. They're investing in environmentally friendly stocks -- either directly or through funds -- to make money. Wyly, a Los Angeles resident whose father, Sam, made a fortune in software, lives in a solar-powered house and drives a car that runs on biodiesel fuel, but she's hard-nosed about finances. "It's not either/or," she says. "You can make money at this."
But it's one thing for a number of well-meaning individuals to glom onto a powerful investment theme that -- pardon the expression -- has the wind at its back. It's another thing to actually make good money. After all, the same kind of can't-miss thinking impoverished millions of investors who were sure that buying highflying Internet stocks was akin to minting money.
The scarcity factor
But there are also plenty of pros who believe that green investing is the next big thing. Take Christopher Peck, a financial adviser in Windsor, Cal., with the aptly named Natural Investment Services. Investing in alternative-energy stocks or specialized green funds, he says, isn't like buying shares of chip makers, telecommunications-equipment producers and Internet companies -- sectors in which product prices trend downward. Green power is a premium-priced product, and it's still relatively scarce. Venture capitalists and other large investors who are pouring money into green enterprises aren't doing it for charitable purposes, Peck says. "They have no intention of accepting inferior returns."
Two well-publicized developments underlie the growing interest in alternative energy. One is rising fuel costs. Crude-oil prices have jumped 600% since 1999, and gasoline prices have soared. As a result, filling up an SUV can cost $100 nowadays. At the same time, growing numbers of scientists and government officials now accept that emissions of greenhouse gases, such as carbon dioxide and methane, are contributing to higher global temperatures, which could have catastrophic consequences for the planet.
There are a lot of reasons to believe that investing in the environment can generate sustainable, long-term profits. They include:
Range of choices. One of the nice things about green investing is that the universe of potential investments is large and wide. Green stocks encompass a variety of sectors, company sizes and quality. Many potential investments are young, small and risky. But you can green up a portfolio with a package of proven blue chips, such as General Electric (symbol GE), Johnson Controls (JCI) and United Technologies (UTX). All three work with developers to cool, heat and light buildings more efficiently, among other things. That's important because buildings are responsible for about one-third of the world's energy consumption.
Look at United Technologies, a green double play. It has been developing more-efficient helicopters and jet engines, as well as such innovative products as gearless elevators that use half the power of traditional lifts. The industrial conglomerate has also reduced its own energy consumption by 2% a year for ten years and intends to accelerate those savings. Meanwhile, the company has boosted its earnings 14% annually since 2002. Its stock price has doubled, and so have its cash dividends.
Global footprint. Scan the holdings of funds such as Winslow Green Growth and Calvert Global Alternative Energy, and you'll find companies from all over the world. When it comes to greentech, the leaders hail from Britain, Denmark, Japan and Spain, as well as from the U.S. Energy costs more in Europe, so many of the region's governments and financial markets want these new technologies to succeed.
No social limitations. Don't confuse eco-investing with socially screened investing. Social screens typically rule out stocks because of the products a company makes or the way it treats employees. Many environmentally oriented advisers, portfolio managers and major investors, such as the state of California, are more interested in benefiting financially from breakthrough technologies than blackballing companies for one subjective shortcoming or another.
No hype. During the Internet mania, investment banks foisted ever-more-hopeless stocks on a greedy public. Wall Street, personified by disgraced former Merrill Lynch analyst Henry Blodget, took a well-deserved shot to its reputation. With markets in turmoil because of problems related to indecipherable mortgage securities and impenetrable hedge funds, Wall Street is less likely to play the hype-and-dump game with green stocks.
Fair prices. Although the companies we profile have generally performed well, few trade at insanely high prices. Many are large and well diversified, making them suitable for buy-and-hold investors. But we also offer some racy suggestions for those willing to assume more risk.
Growing fund interest. For nearly a quarter-century, only one mutual fund invested primarily in green stocks. Now, about a half-dozen do, and more are on the way. That will almost certainly create additional demand for these stocks. An intriguing exchange-traded fund is the brainchild of Light Green Advisors, a Seattle firm that manages green-screened money and has created several eco-indexes. The one that includes so-called light-green stocks, says LGA's president, Jon Naimon, doesn't rule out any industries but rather seeks to include companies with strong environmental records. Those kinds of stocks, Naimon contends, deserve a "green premium." Claymore/LGA Green ETF (GRN), an ETF that launched last December, tracks the Light Green Eco*Index and will put Naimon's research to the test. This year to August 20, the fund gained 1%, compared with 3% for Standard & Poor's 500-stock index.
Eco-investing runs in Christiana Wyly's blood. When she was a teenager, she says, she persuaded her father to get involved in the launch of Green Mountain Energy, a privately held Texas firm that sells renewable energy to consumers and utilities in five states. She expects businesses as diverse and unlikely as BP, the British oil giant, and Wal-Mart to become forces in alternative energy, either in their roles as energy producers or users.
Across the country in Asheville, N.C., Jennifer Woodruff's natural building-materials store, Build It Naturally, is on the same street as the congressional office where Kelly Sheehan works. Both say that their plunge into green investing is as much about sound economics as it is about doing right by mankind. If they're correct, they'll be able to claim that they cleaned up while helping to clean up. Now, that's something to feel good about.