By John Wasik
CHICAGO, April 2 Want to vote with your dollars
when it comes to environmental concerns? One way is to invest in
environmentally focused mutual and exchange-traded funds,
although you may be trading your green conscience for increased
People who are concerned about energy prices and climate
change have put more than $3 trillion into the hands of managers
who target positive environmental, social and corporate
governance practices, encompassing more than 250 investment
funds, according to the Forum for Sustainable and Responsible
Investment's 2010 report on socially responsible investing.
Like any sector, environmental stocks are volatile. One year
ethanol producers are hot, then sold off. Solar-panel
manufacturers sizzle - and then fade.
I've found that green funds tend to overweight a particular
sub-sector. Some managers may focus on water infrastructure,
while others may hold a broader array of geothermal, biomass,
solar, wind and energy-efficiency stocks.
When considering actively managed funds, you always
encounter higher sector risk; managers can guess wrong on which
will be the next hot industry.
Green funds were not immune to the travails of the market
meltdown in 2008. They were sold off with the broader market and
closely track it. If you take a look at the performance chart of
a green fund such as the Market Vectors Environmental Services
ETF, you can see it parallels the S&P 500 Index. When the
index tumbled in late 2008, the Market Vectors fund followed,
although slightly outperforming it over the past five years.
And, of course, in the real world, no one company is
entirely clean and green, although these specialized managers
attempt to find companies focused on sustainability and
solutions to the global problems of resource depletion, energy
consumption, pollution and climate change.
All of this is not to say that you can't do well in a green
fund. Along with the rest of the stock market, their returns
have blossomed recently. The Winslow Green Growth Fund
is up about 13 percent year to date through March 30. The
Fidelity Select Environmental and Alternative Energy fund
has risen about 9 percent.
One of the biggest issues with green funds is that they
haven't been around very long, so most of them don't have track
records that run through several bear markets. Only a handful
have been around for more than 10 years.
Ultimately, though, if you want the broadest-possible
exposure to green investing, you'll need an index fund that
covers much more ground and doesn't specialize in environmental
companies. The Vanguard Total Market Index ETF samples
more than 3,000 stocks, so your chance of owning the next
Microsoft of green technology is more likely to be from holding
Costs are also much lower in the bigger index funds. The
Vanguard fund, for example, has a 0.07 percent annual expense
ratio for management fees. The Winslow fund, in comparison,
charges 1.45 percent.
Even though there may be more losers than winners, green
companies may be golden over the long term. Energy and resource
issues are only going to get more challenging as more people
crowd the planet and demand more water, electricity, fertilizer,
oil, coal, metals and consumer goods.
Yet don't amplify the risk profile of your portfolio en
route to doing the right thing. There are many more sensible
ways to help the planet.