The growth of mutual funds that invest in stocks perceived as friendly to the environment came to a halt last year as investors scrambled for safety, but industry experts think that once investors regain their confidence, green funds will benefit.
Green investing "may have gotten bumped off the front page because of the financial crisis, but I don't see it going away," said Michael Herbst, a fund analyst at Chicago-based Morningstar Inc. "Climate change hasn't reversed."
In a study released in November, which looked at growth from 2001, Lipper Inc. of New York found that assets in green funds had grown 640%, to $1.1 billion as of Oct. 31 from $153 million that year.
Lipper hasn't revisited the issue of green investing, but given the outflows seen among all stock mutual funds, it is a safe bet that assets in green funds haven't grown either, said Jonathan Kreider, author of the report and a fiduciary research analyst at the firm.
Total assets in mutual funds at the end of last year were $9.6 trillion, down from $12 trillion at the end of 2007.
The case for investing in green companies, however, remains strong, said Bruce Jenkyn-Jones, investment director at Impax Asset Management Ltd. of London and co-portfolio manager of the $6 million Pax World Global Green Fund (PGRGX), which Portsmouth, N.H.-based Pax World Management Corp. launched in March 2008.
"The argument with green investing is this is an area that's growing and should outperform," he said.
Some financial advisers, however, are skeptical.
"I think it's sort of a trendy thing," Steven M. Elwell, a financial planner with Schroeder Braxton & Vogt Inc. of Amherst, N.Y., said about green investing. The firm has $220 million in assets under management.
Labeling a fund "green" is nothing more than a particularly dangerous sales gimmick, Mr. Elwell said. A fund that purports to invest in green companies limits the universe from which it can select stocks, thus increasing diversification risk, he said.
However, a look at two of the largest and oldest green funds identified by Morningstar shows that they pretty much perform in line with their peers.
The $171 million Portfolio 21 Fund (PORTX) from Portfolio 21 Investments Inc. of Portland, Ore., was down 4.79% year-to-date as of last Monday. The fund was down 36.16% for the one-year period; down 9.13% for the three-year period, and down 0.25% for the five-year period.
And the $159 million New Alternatives Fund (NALFX) from Accrued Equities Inc. of Melville, N.Y., was down 5.06% year-to-date; down 41.76% for the one year-period; down 8.82% for the three-year period, and up 2.03% for the five-year period.
As of last Monday, Morningstar's world stock fund category, to which the two funds belong, was down 4.84% year-to-date. The fund fell 40.96% for the one-year period; 12.55% for the three-year period, and 2.50% for the five-year period.
Of course, "green" doesn't mean the same thing to everyone.
"We've found that people's definition of 'green' varies quite widely," Mr. Herbst said.
For example, Portfolio 21 casts a relatively broad net and includes some companies that investors might not consider green. It holds shares of sneaker manufacturer Nike Inc. (NKE) of Beaverton, Ore., because of its green practices, not because the company is directly involved in a green industry.
New Alternatives is narrower, focusing on green utilities and energy companies. The fund invests in companies such as Atmos Energy Corp. (ATO) of Dallas, a natural-gas distribution company.
Whatever approach a fund takes to green investing, it seems certain that investor interest will pick up when the markets pick up.
Trading platforms "are coming to us because people are demanding an investment of this nature," said Murray E. Rosenblith, a fund director with New Alternatives.
Even if some advisers are leery of green funds, they might still suggest funds to clients who show an interest.
"I don't proactively recommend them, but if clients express an interest I can steer them to a couple of funds," said Micha Porter, president of Minerva Planning Group Inc., an Atlanta-based firm with $60 million under management.
E-mail David Hoffman at [email protected].
