For Holly Isdale, managing director and head of wealth advisory at Lehman Brothers, global warming isn’t a scientific theory — it’s an investment opportunity.
“It’s not just tree huggers” who think about global warming, say Ms. Isdale. “There’s money to be made, and people want to know how to make it.”
This year, researchers at Citigroup Inc.,Lehman Brothers Holdings Inc. and UBS AG have issued widely circulated reports on risks and opportunities for investors because of climate change. They argue that global warming can no longer be ignored as a factor in investing.
Researchers at these firms and others are identifying companies well-positioned for global warming, either because they are devising new technologies or because they are taking advantage of market changes.
Investment managers are introducing green mutual funds and exchange-traded funds, hoping to gain an investment edge. Investment strategists are advising bankers, brokers and clients to think about how climate change will affect their investments.
They are finding intense interest. Ms. Isdale says clients are asking about such things as potential investments, public policy, land conservation and environmentally beneficial philanthropy.
There are risks to investing with global warming in mind. Apart from individual stocks, few green investment products are available in the U.S., and most charge higher expenses than traditional mutual funds. Many of the companies involved in green technology are small, so they carry more investment risk; moreover, green technology is developing so quickly it is hard to predict which companies will eventually win.
Also, Americans could lose interest in more energy-efficient cars and other products if gasoline prices drop.
Despite the risks, green investment vehicles — especially those in Europe — are building successful track records, say green-investing advocates. New technologies and government mandates to cut emissions, especially overseas, are driving some investments. Scientific research, media coverage, changes in public policy, and even weather-related disasters such as Hurricane Katrina are driving awareness.
Citi Global has identified 85 companies in 23 countries and seven industry sectors that it thinks are well-positioned in the face of climate change. Food producer Archer-Daniels-Midland Co. has direct exposure to the global demand for ethanol. Honda Motor Co. was selected for its advanced diesel technology, and Toyota Motor Corp. for its hybrid engine technology. Citi Global also likes ACE Ltd. and Arch Capital Group Ltd., property and casualty insurers, because the serious hurricanes in recent years have led some large insurers and reinsurers to abandon some hurricane-prone regions of the U.S. As a result, there is an opportunity for some small insurers to move in.
Kurt Reiman, head of thematic research for UBS Wealth Management Research and co-author of its report “Beyond Whether,” recommends that investors consider mutual funds, which would give them exposure to a number of companies, and allow professional managers to sort through the companies’ changing fortunes. “It’s a difficult investment, because a lot of emerging technology is in small-cap companies,” which face more risks, he says.
Sustainable Asset Management of Zurich, which has $9 billion under management and advisement in Europe, has seven funds. Reto Ringger, founder and chief executive of the company, which developed the Dow Jones Sustainability Indexes, expects to offer some funds in the U.S. this fall. (Dow Jones & Co. publishes The Wall Street Journal.)
Calvert, one of the largest socially responsible mutual-fund firms in the U.S., last week introduced the Calvert Global Alternative Energy Fund, which invests in alternative-energy sectors such as solar, wind and hydroelectric power. The fund carries an annual expense ratio of 1.85%.
PowerShares WilderHill Clean Energy Portfolio, an exchange-traded fund, is a pick of Sacha Millstone, senior vice president for investments of the Millstone Evans Group at Raymond James & Associates in Colorado. ETFs resemble index funds but trade like stocks; this one has more than 40 stocks, with an expense-ratio cap of 0.6%. Some of its top holdings are in Echelon Corp., which provides networking technology, and Cree Inc., which makes semiconductors.
Ms. Millstone warns that investors need to determine their financial goals, risk tolerance and time frame before deciding how to allocate their portfolios.
Original Article by The Wall Street Journal at http://online.wsj.com/article/SB118239582814643063.html?mod=googlenews_wsj
