Going Beyond the Hype of Green Investing: Part II
A roundup of green mutual funds and exchange-traded funds.
In the first half of this Fund Spy, I wrote that we've witnessed a growing interest in green funds, meaning those that are environmentally oriented. Since then we've added coverage on a number of green funds. We approach green funds as we would any other kind of fund, which bears remembering, because the hype around green funds can be pretty tough to cut through. We home in on a green fund's strategy to uncover its risks and to get a grasp on how an investor might use it. Scrutiny of a green fund's management, including its experience and research support, gives us an idea how well-equipped it may be to handle the risks of its approach and to add value for investors. We also check out funds' price tags because high fees take a big chunk out of funds' gains.
Different Shades of Green
Investors should read the description of a fund's strategy closely because there are more shades of green than we thought possible. For instance, Portfolio 21 (PORTX) invests in companies around the globe that employ environmentally and socially sustainable business practices, such as European mega-retailer Carrefour. That slant gives it a broader sector range than most green funds and makes it diversified enough to use as a core holding. Spectra Green (SPEGX) has a similar large-cap bias and is also well-diversified across sectors, making it an option for green investors seeking a domestically focused core fund.
Yet most green funds would be suitable only in small doses. Many, such as Winslow Green Growth (WGGFX), emphasize smaller, riskier companies. Others, such as Calvert Global Alternative Energy (CGAEX), focus on narrow slices of the market. Many are quite concentrated: As of late, Guinness Atkinson Alternative Energy (GAAEX) and exchange-traded fund PowerShares WilderHill Clean Energy (PBW) had roughly 90% of assets stashed in the hardware, industrial-materials, and utilities sectors alone. That concentration is a big reason we're wary of many of the green ETFs we've seen. We just don't think investors need a water-based ETF such as Claymore S&P Global Water (CGW), or the ultraconcentrated Market Vectors Environmental Services (EVX). Funds with concentrated portfolios or a pronounced small-cap tilt court plenty of volatility and should be approached with caution.
Michael Herbst does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.