Just as the alternative energy industry will most likely provide lucrative investment opportunities, so will the overseas markets in the coming years, which is why Fidelity Investments is positioning its 20-year-old environmental energy mutual fund right at the crossroads of those two businesses.

Fidelity Investments announced on Thursday that it has launched the Fidelity Select Environment and Alternative Energy Portfolio, a retooling of the 20-year-old Select Environmental Portfolio mutual fund. The idea is to increase exposure to faster growing industries like alternative energy and efficiency, while reducing holdings in slower growth businesses like waste management.

Anna Davydova, who manages the portfolio for Fidelity Investments, points to three industry forces, independent of market movements, that she says will drive the sector’s long-term growth: massive populations in emerging markets will become more industrialized, future government policies will emphasize environmental protection and reduction in fossil fuel emissions, and technology is developing quickly enough to drive energy solutions, increase energy efficiency and control pollution.

Such growth, however, also carries inefficiencies, says Brian B. Hogan, president of the Fidelity Investments equity group. “Fidelity’s extensive research resources and decades of experience in the sector, combined with our long-term investment horizon, should position us to perform the extensive bottom-up research necessary to identify the long-term industry winners.”

“We are excited about the opportunities made possible by the fund’s new investment policy,” Davydova said. “There is tremendous social and political support behind environmental industries as well as growing demand for new and cleaner sources of energy.”

Effective today, the fund will invest at least 80% of its proceeds in the securities of companies engaged in the renewable energy, energy efficiency, pollution control, water infrastructure, waste, recycling technologies or other services that support those businesses. Also, the fund will be benchmarked to the FTSE Environmental Opportunities & Alternative Energy Index.

The environmental and alternative energy business can carry substantial risks specific to individual industries and stocks, Davydova says.

One well-known market risk involves Germany cutting government subsidies to solar energy businesses by about 15%. Market professionals have feared that the market would experience a tangible pullback in demand for solar energy, since Germany is one of the world’s largest users of the technology.

In the face of those risks, the fund will be diversified across companies, market capitalizations, geographies, stages of technical development and environmental sectors. “I expect that to continue,” Davydova said of the alternative energy’s ups and downs. “Investors may want to consider the fund a complementary holding within a broader diversified portfolio.”