(The opinions expressed here are those of the author, a
columnist for Reuters.)
By John Wasik
CHICAGO, April 21 If you're ecology minded, the
news hasn't been all that green of late, with ice caps and
glaciers melting and storms becoming more destructive. But there
is a huge silver lining for long-term investors in
environmentally-friendly companies and technologies.
To stave off a nearly 5-degree global temperature increase
by 2100, nations must cut their global greenhouse emissions by
up to 70 percent by the middle of this century, according to a
recent report by the Intergovernmental Panel on Climate Change.
There's little consensus among developed and emerging
nations on how to effectively deal with climate change and
reduce the amount of greenhouse gases, but there is agreement on
one aspect of this global threat: Trillions of needed dollars
will continue to pour into renewable and clean sources of
energy, transportation, building and manufacturing.
Although investors have typically focused on a small group
of "clean tech" funds and stocks, you can cast a wider net to
capture the upside of this influx of investment. Nearly every
company in the S&P 500 Index has some involvement in "greening"
their operations from recycling to creating their own sources of
Take wind power. The retailer Ikea recently announced it was
buying a wind farm in Illinois. Microsoft Corp is
purchasing a Texas wind facility. Facebook Inc, Google
Inc and Wal-Mart Stores Inc are also investing
in the technology.
On the solar power front, solar panel prices have plummeted
and there are a host of collateral technologies such as battery
storage, energy management systems and co-generation that
One of the oldest and most diversified mutual funds in this
sector is the New Alternatives Fund Inc, which is up
35 percent for the last 12 months through April 17 and up 8
percent year to date, compared to just under one percent for the
MSCI EAFE index. The fund is expensive to own, though, charging
a 1.1 percent annual management fee and 4.75-percent initial
The New Alternatives portfolio samples several companies
from the clean tech sector, holding industry leaders like Vestas
Wind Systems A/S, Johnson Controls Inc and
American Water Works Co.
A less-costly fund to own is the PowerShares Cleantech ETF
, which holds ABB Ltd, Corning Inc and
Siemens AG, companies with several stakes in
broad-based energy businesses. The fund charges 0.67 percent
annually for management expenses. It's up 33 percent for the 12
months through April 17.
LANDSCAPE FOR GREEN POWER
What will make alternative energy profitable is what experts
called clean "distributed" power, that is, electricity that's
not generated by old-line utilities on the grid using coal or
nuclear energy. When clean energy becomes competitive with
fossil fuels, that's when it makes economic sense, which has
been increasingly the case.
Falling costs of alternative energy products in recent year
are enhancing the potential of clean energy technologies and
displacing "dirty" power plants.
According to a recent report by the consulting firm McKinsey
& Company on solar energy, the drop in price residential
consumers pay in the United States to install rooftop solar
systems means "These cost reductions will put solar within
striking distance, in economic terms, of new construction for
traditional power-generation technologies, such as coal, natural
gas, and nuclear energy."
The outlook for solar energy also applies in a general sense
to wind and other clean-energy technologies. As costs of running
a coal-fired or nuclear plant continue to rise, alternative
energy prices keep falling, making them competitive on a mass
As one of the smallest sub-sectors in the overall economy,
though, clean energy has been volatile. And price wars in solar
cells have turned leading solar companies valuations into roller
coasters. First Solar Inc's stock price, for example,
was in negative territory from 2009 through 2012, then
skyrocketed 77 percent last year. The company is up 27 percent
year-to-date through April 17.
Take heed: Even investing through a diversified index fund
like the PowerShares ETF is going to be rocky. The fund has a
five-year volatility measure of nearly 22, compared to about 16
for an MSCI World stock index. It also lost half of its value
in 2008. If you're going to invest in this sector, stay away
from concentrating your holdings in single stocks. While the
climate for these stocks looks good at the moment - and will
certainly pay dividends over time - the short-term outlook could
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Editing by Beth Pinsker and Andrew Hay)