Increased environmental awareness has lead to increased investment options, according to The Wall Street Journal.
Global warming has helped stoke the interest. “It’s not just tree huggers,” said Holly Isdale, managing director in charge of wealth advisory services at Lehman Brothers. “There is money to be made, and people want to know how to make it.”
Increasingly, investment advisors have urged brokers and investors alike to consider the impact of climate change on portfolios. Meanwhile, fund companies have introduced new mutual funds and exchange-traded funds that take into account factors such as public policy change, philanthropy and land conservation movements.
Still, investing in the environment can be as unpredictable as the weather. For one thing, many of the available products are overseas, which immediately makes them pricey. For another, many technology innovators tend to be smaller or start-up companies, which means they are more volatile, said Kurt Reiman¸ who heads thematic research at UBS Wealth Management Research. Also, so many of the companies are new that it’s hard to determine which will survive.
Finally, much depends on consumer sentiment. If the interest in eco-conscious hybrid cars and other such product turns out to be a fad, portfolios will suffer.
Still, so far, these so-called socially responsible products have performed well.
Citi Global has highlighted 85 companies in 23 countries it considers climate-change ready. These range from food producer Archer-Daniels-Midland, which supplies ethanol, to Arch Capital Group, which provides property and casualty insurance, and small companies that have moved into the hurricane insurance niche after behemoths ended coverage following Hurricane Katrina and other large storms.
However, expenses on socially conscious mutual funds continue to be a stumbling block. For example the Calvert Global Alternative Energy Fund, introduced last week, carries a 1.85% expense ration, about 35 basis points above most other actively managed funds.
PowerShares introduced the WilderHill Clean Energy Portfolio ETF. Based on an index of about 40 stocks, the company caps its expenses at 60 basis points. Major holdings include network technology company Echelon and semiconductor manufacturer Cree.