Friday, December 21, 2007

How to Cash in on a Warming Planet

From BusinessWeek:

Set aside, for now, the really complex and costly financial implications of climate change. Ignore the tricky abstractions of carbon trading. Forget the worries over flooded cities and the ins and outs of renewable energy.

Instead, consider just a few everyday money-making ideas created by the warming of our planet. For example, oenophiles could short the stocks of vintners in drought-prone areas such as Australia or California and bet on upstarts in Canada and England, where new wineries are sprouting as temperatures rise. Or, since ski resorts are seeing less and less snow, it might make sense to buy and hold manufacturers of snowmakers.

Of course, the potential of climate-change investing goes far beyond mere curiosities. A growing number of advisers to big institutional investors and high-net-worth types are sizing up companies based on how likely they are to benefit from rising energy prices, stricter regulations, and changes to the natural world ranging from freshwater shortages to new disease patterns and more chaotic weather.

Since public opinion is increasingly driving U.S. policymakers to act, analysts' climate predictions need not be perfectly prescient to pay off. "Perception drives valuations," says Edward M. Kerschner, chief investment strategist for Citi Global Wealth Management (C), who recently made public a list of some 90 "climate consequences companies" he believes could excel as the climate changes and limits on carbon emissions multiply.

If there's a whiff of familiarity to investing in climate change, that's because some of its key elements have already attracted attention. Pure-play renewable energy stocks, for example, make up a big slice of the new climate change offerings and have seen meteoric gains over the past year. The difference is that climate change strategists make their picks from a larger pool, including everything from small-cap alternative energy startups to globe-spanning conglomerates, as well as a few decidedly nongreen plays. Given the breadth of companies in this space, "there's significant opportunity for actively managed funds," says Michael Herbst, a mutual fund analyst at Morningstar (MORN).


Consider HSBC's (HBC) Global Climate Change Benchmark Index, which tracks 300 equities, spans 34 countries (11 of which are emerging markets), and includes small, medium, and big companies. Simulations of the 45 months prior to its September debut show the index would have beaten the Morgan Stanley (MS) Capital International (MSCI) global index by 70%. In November, HSBC launched a fund in Europe that focuses on a subset of about 60 companies from the index. A U.S. version, the GIF Climate Change Fund, is due by April....MORE