Friday, March 28, 2008

Handicapping green investments is no snap

Tell me about it. In a prior post I relayed the advice one of my mentors gave me:

"There are a thousand ways to lose money in the markets. When you learn one, try to avoid repeating it".

The alt/renewable energy sector offers all kinds of ways to lose money, betting on the wrong horse, betting on the right horse in the wrong part of the race, misunderstanding the politics, misperceiving human nature and betting on the wrong jockey; there's a loss creation method for every taste.
(I'll stop with the horsey talk, The IHT started it with that headline)
Here's a story from the International Herald Tribune, well worth a read:

The buzz words "climate" and "change" have been appropriated by the funds industry to market a new line of "green" equity products. But is this investment concept hot enough to coax investors back into markets that are buckling under more pressing financial concerns?
Allianz, Schroders, HSBC, DWS and Virgin are among the money managers who figure that climate change should influence our investment decisions. Their message is simple: Companies that profit from global warming will make more money as the problem tightens its grip. Conversely, companies that refuse to face up to their green responsibilities will run the risk of climate change lawsuits and profit downgrades.

Behind the plain talk lies a complex challenge: picking stocks that are best placed to deliver exceptional returns. Climate change cuts across regions, sectors and market capitalization - an investment universe that encompasses from 350 to 1,500 stocks, depending on the screening criteria adopted by stock selectors.

Naturally, fund promoters are at pains to point out that climate change is a "megatrend" that will weather the vagaries of short-term market disruptions and deliver superior returns. They all pursue different investment strategies to make this point.

Schroders Global Climate Change Fund, for instance, is heavily invested in fossil fuels and such resources as food and farming, as well as the core clean energy and transport areas. Like many other climate change investors, the Schroders portfolio manager, Simon Webber, has adopted an approach that skirts so-called ethical investing by buying stocks in the nuclear, natural gas and oil industries