Amid concerns about rising energy costs, Firsthand Capital Management Inc. is widening its focus on technology to include alternative energy.
In October, the San Jose, Calif.-based company unveiled the Firsthand Alternative Energy Fund (ALTEX) to invest in technologies aimed at reducing oil consumption. The fund invests in companies developing the use of solar, wind, fuel cells, hydroelectric power and other forms of alternative energy.
"The promise of these technologies has attracted significant interest from the investment community in a short period of time," according to Firsthand's website.
GREEN TECHNOLOGY
The launch of the fund comes as many Americans are looking to cut back on their use of oil. The price of a barrel of crude increased 101% to $123.53 per barrel over the one-year period ended last Wednesday.
Meanwhile, the amount of money invested in alternative energy and efficiency technologies increased to more than $70 billion in 2006, from $27.5 billion in 2004, according to data from New Energy Finance Ltd. of London.
From its inception Oct. 29 through March 31, the Firsthand Alternative Energy Fund amassed $2.8 million in assets.
"Many investors don't make the connection between technology and alternative energy," said Kevin Landis, Firsthand's president and chief executive. "The socially responsible investment-screening progress is different because it looks at a larger array of investment criteria. We are looking for companies that are filing patents."
EXPENSE VS. PERFORMANCE
The fund, which is sold through financial advisers, invests in 27 companies. It comes with an expense ratio of 2.1%, compared with 1.56% for the average fund in its category.
"My initial reaction to the fund is that it is expensive and very narrowly focused," said Karen Dolan, director of fund analysis at Morningstar Inc. of Chicago. "Investors tend to use these funds poorly, and I am worried that we will see this same pattern with the alternative-energy fund."
Mr. Landis defends the fund's expense ratio. It is more expensive, he said, because it uses short selling to provide a buffer from market downturns.
"We just worry about performance net of fees," Mr. Landis added. "We just make sure that the fund outperforms. If the fund underperforms, then the managers have put themselves under the gun."
Year-to-date through last Wednesday, the fund had fallen 6.79%. That compares with a 5.8% loss for the Standard & Poor's 500 stock index. Meanwhile, the WilderHill Clean Energy Index, which was created by WilderShares LLC of Encinitas, Calif., had lost 23.3%.
Firsthand, which manages $650 million in assets, has taken the same narrow approach to running its five other technology funds — the Technology Value Fund (TVFQX), the Technology Leaders Fund (TLFQX), the Technology Innovators Fund (TIFQX), the e-Commerce Fund (TEFQX) and the Global Technology Fund (GTFQX). Each fund comes with an expense ratio close to 2%.
"For the investor who needs this kind of exposure, it is a speculative fund," Ms. Dolan said.
As an incentive, Firsthand Capital Management has pledged to donate nearly 10% of the management fees it collects from the Alternative Energy Fund to several environmental causes, ranging from land and habitat conservation to animal rights and renewable energy.
E-mail Aaron Siegel at [email protected].
