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April 19, 2014  |  Login
Green Mutual Funds
By John Rubino
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Green Mutual Funds

You probably have a good sense of the breadth and complexity of clean tech: hundreds of companies with dozens of technologies operating all over the world, with shares trading on about a dozen different exchanges. This is not retail or commercial real estate, where a few hours of study yield a grasp of the basics and a sense of where to put your money. Clean tech is a much bigger, more complicated animal. Which means the vast majority of people reading this - who presumably have lives beyond investing - should not be trying to separate clean-tech winners from losers with their life savings. Far better to hand the responsibility off to a professional who spends all day and most of each night sorting through the dynamics of biodiesel versus lithium-ion versus hydrogen storage, and let him or her spread your risks around.

Many Shades of Green

But which money manager? This, at least, is a relatively straightforward question, since in early 2008 there were just a handful of options. Let's begin by noting that both socially conscious and clean-tech funds are frequently lumped under the "green" heading, but as you can see by comparing the portfolios of, say, the Guinness Atkinson Alternative Energy (Table 2) and Sierra Club (Table 4) funds, they operate with very different philosophies. A socially conscious fund like Sierra Club is open to pretty much any company that's a good corporate citizen-or at least not a bad one. By this standard, Google, Microsoft, and Aflac are all acceptable investments because they treat their workers well and don't pollute. That's great, and in the long run their good citizenship will probably pay financial dividends. But since we are trying to focus on the technologies that will solve humanity's environmental and economic problems, socially conscious funds are not what we're looking for. True clean-tech funds are heavily laden with solar, wind, and water stocks.

Here are some other things to consider when choosing a fund:

Global Diversification. With most sectors, it's possible for U.S. investors to build a completely acceptable portfolio of domestic companies. Not so with clean tech. Many of the leaders in solar, wind, and several other niches are headquartered in Europe or Asia, and many of their stocks don't trade in the United States (though that's not the hurdle it once was). A mutual fund with the ability to buy foreign stocks has a big advantage in that regard. The New Alternatives Fund, for instance (Table 3), invests about 60 percent of its capital in companies based outside the United States.

Expenses. Mutual fund managers charge their investors management fees that are calculated as a percent of assets. If you've invested $10,000 with XYZ Fund and its expense ratio is 1 percent, then you'll pay $100 per year for their services. Generally, more complex sectors have higher fees. The manager of a long-term Treasury bond fund deals with relatively a simple subject and therefore can't get away with charging much. But running a tech fund-especially clean tech, which is both complicated and global-requires a great deal of analysis, as well as frequent travel to visit companies around the world. You'd expect them to charge more than the average fund, and you'd be right-though in the scheme of things, and considering the potential gains that will accrue to good judgment, the major clean-tech funds' fees are reasonable.

Turnover. Mutual funds are constantly buying and selling, and turnover is the number that gauges how much action a given manager generates, expressed as a percentage of the overall portfolio. A turnover rate of zero means the manager never sells anything, while a rate of 100 percent means that in a typical year he sells and replaces everything. more

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