Put Your Money Where the Green Is
Financial advice in the pages of Outside? It's a departure, sure, but it doesn't take a genius to see which way the money's blowing. In the pages that follow, we'll introduce you to a guru of green investing and lead you through a savvy, three-step plan for getting in the game yourself. Because in a world of high gas prices and climate ch
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Get in the Game: Mutual Funds
Talk the TalkA company’s market capitalization is determined by multiplying current share price by the firm’s total number of shares outstanding. Those with market caps of billion or more are broadly described as Large Caps and tend to include firms from established industries that generate big revenues. Small Caps have market caps of less than
billion and tend to be younger companies with more volatile businessesand therefore more volatile stocks (read: tech stocks). Generally, small-cap stocks are thought to bear greater risk, but that can also mean greater opportunity for reward. Mid-cap companies fall somewhere in between.
If the thought of directing your own individual stock trades is intimidating, experts suggest you start out by buying shares in a mutual fund, a pool of money collected from a group of investors and managed by a financial expert. Following a fund-specific set of investment criteria, the expert, or fund manager, uses the cash to invest in a range of stocks, bonds, or other assets. “With a mutual fund, you get automatic diversityyou’re able to acquire stakes in numerous companies at once,” says Matthew Patsky, a portfolio manager at the Boston-based Winslow Green Growth Fund. While stockbrokers charge just about every time you buy or sell shares, mutual-fund companies collect one annual fee that covers all fund-operating expenses. Called an expense ratio, the fee is a percentage of your average net holdings for the year. The funds featured here invest in companies that practice sustainability or carbon neutrality or focus on developing alternative-energy technologies. Most have consistently outperformed the S&P 500 Index average over the past five years.
SMART PICKS: MUTUAL FUNDS
1. Calvert Large Cap Growth Fund (clgax)
Focus: Eco-savvy large-caps ($10 billion and up) Typical stock: Goldman Sachs, which promotes mandatory pollution reductions Five-year average annual return: 4.88% Minimum initial investment: $2,000 Expense ratio: 1.56%, with a one-time upfront fee of 4.75% of initial investment Net assets: $1.15 billion. calvert.com
2. New Alternatives Fund (NALFX)
Focus: Foreign and domestic alternative-energy companies Typical stock: German solar-panel maker Conenergy Five-year return: 5.75% Minimum initial investment: $2,500 Expense ratio: 1.17% Net assets: $95 million. newalternativesfund.com
3. Portfolio 21 (PORTX)
Focus: Small-cap clean-techs and large-cap companies with sustainability programs Typical stock: Swiss Re, a corporate leader in global-warming awareness Five-year return: 7.2% Minimum initial investment: $5,000 Expense ratio: 1.5% Net assets: $130 million. portfolio21.com
4. PowerShares WilderHill Clean Energy Portfolio (PBW)
Focus: Small-cap clean-techs; holdings are identical to those on the WilderHill Clean Energy Index Typical stock: Canadian fuel-cell manufacturer Ballard Power Systems Return since March 2005 inception: 16.04% Minimum initial investment: $50 Expense ratio: 0.7% Net assets: $664 million. powershares.com
5. Winslow Green Growth Fund (WGGFX)
Focus: Clean-tech and eco-savvy small- cap companies Typical stock: Zoltek, of St. Louis, a supplier of carbon fiber for wind turbines Five-year return: 8.2% Minimum initial investment: $5,000 Expense ratio: 1.45% Net assets: $290 million. winslowgreen.com
Play the Market
Think Globally, Invest LocallyWant to put your money to work on a local level? Scott Pope, president of Eugene, Oregon’s Sustainable Wealth Management, recommends that his clients direct at least 1 percent of their investment money to community investments like “EcoDeposits”green certificates of deposit issued by Ilwaco, Washingtonbased Shorebank Pacific. With a $500 minimum investment, the CDs are offered for six-to-60-month terms; at press time, a $2,500 six-month EcoDeposit offered an annual percentage yield of 3.58 percent. Shorebank, meanwhile, uses CD investors’ cash for loans to Oregon and Washington businesses committed to reducing resource consumption or pollution output, as well as for nonprofit environmental- and economic-development projects, such as low-income housing. For more on EcoDeposits, visit…
Don’t have $1,200 to $5,000 to invest in a mutual fund? You can buy stock for as little as $20 a share through online brokerages such as eTrade and Ameritrade. If you buy stocks individually, rather than through a mutual fund, you’ll end up paying more in commissions and trading fees (as a percentage of your total invested dollars). You’ll also lose some of the security that comes with sharing risk with a group of investors. The upside? You’re in control; you can buy and sell whenever you wish. (Just make sure you pay close attention to your positions.) We asked our panel of green financial experts to call out some stocks they own themselves and like enough to recommend. As you’ll see, even long-established companies in more traditional industries can be considered “green” if they’re operating with the environment in mind. The smaller, newer companies on the picks list are more focused on eco-specific products and services. If you’re willing to take on greater risk in exchange for a chance at higher gains, these may be the stocks for you.
SMART PICKS: GREEN STOCKS
1. Adobe Systems Inc. (ADBE)
“We like software companies like Adobe, whose Acrobat Readers help minimize paper usagethat’s good for the environment,” says Carsten Henningsen, of the Portfolio 21 mutual fund. Market cap: $18.95 billion Share price at press time: $32.72, up 19.6% over 12 months.
2. aQuantive Inc. (AQNT)
This nine-year-old Seattle-based company is a global leader in online marketing. “We believe that everything we move off of paper is green,” says Winslow Fund’s Patsky. Market cap: $1.85 billion Share price: $24.01, up 24.4% over 12 months.
3. Green Mountain Coffee Roasters Inc. (gmcr)
“Great company, solid performance,” says Scott Pope, of Sustainable Wealth Management. Founded in 1981 in Vermont, it was one of the first coffee retailers to promote sustainable agriculture in Latin America by selling Fair Trade organic coffee. Market cap: $285 million Share price: $37.64, up 3.1% over 12 months.
4. Hewlett-Packard Co. (HPQ)
“HP is a recognized leader in areas like waste reduction, with more than 400 different products that meet EnergyStar guidelines,” says investment adviser Scott Pope, of Sustainable Wealth Management. Market cap: $100 billion Share price: $35.84, up 32.9% over 12 months.
5. IBM (IBM)
Portfolio 21’s largest holdings, says Henningsen, are in IBM, “a big, traditional company that’s doing great things in terms of making its products more energy efficient and recyclable.” Market cap: $122 billion Share price: $80.28, up 0.3% over 12 months.
Green-Market Web Sites
Our Panel of ExpertsFor help with this article, we turned to some of the country’s leading green-investing experts (see “Smart Picks: Mutual Funds”). Carsten Henningsen is chairman of the Portfolio 21 mutual fund. Matthew Patsky is co-manager of the Winslow Green Growth Fund. Scott Pope is the senior investment adviser at Sustainable Wealth Management. David Schoenwald is the portfolio manager of New Alternatives Fund. Robert Wilder is founder of the WilderHill Clean Energy Index.
Stay on top of the green-investing world with these Web sites and newsletters. ceres.org: Ceres, a network of green investors and environmentalists working to promote “environmental stewardship on the part of businesses,” offers environmental news and free reports on the corporate governance of large-cap companies. greenmoney.com: Offers tips and news about socially and environmentally responsible business and investing. socialfunds.com: Compare the holdings and performances of 75 socially responsible mutual funds and get daily market trends, stock research, and news about shareholder activism. socialinvest.org: Its database of socially and environmentally conscious financial advisers is a good place to start if you’re looking to hire a pro. sustainablebusiness.com: Regular reviews of companies’ financial and environmental performance. Enviro-minded money managers call the site’s subscribers-only monthly newsletter, Progressive Investor, a must-read ($18 per issue or $165 per year).
SMART PICKS: GREEN STOCKS
6. Kyocera Corp. (KYO)
This Japanese company makes photocopiers and mobile phones, but as Robert Wilder, founder of the WilderHill Clean Energy Index, says, “They’re also the world’s second-largest producer of photovoltaic cells.” Market cap: $16.02 billion Share price: $85.25, up 21.7% over 12 months.
7. Ormat Technologies (ora)
Since 1965, Nevada’s Ormat Technologies has been building and operating geothermal power plants in 13 countries. “The stock has doubled in the last year,” says New Alternatives fund manager David Schoenwald. Market cap: $1.3 billion Share price: $37.40, up 66.1% over 12 months.
8. Suntech Power Holdings Co. Ltd. (STP)
China, with 1.3 billion people, “is a major market for emerging energy technologies,” says Schoenwald. Suntech, China’s largest producer of photovoltaic cells, is among his fund’s largest holdings. Market cap: $3.96 billion Share price: $26.54, up 25.2% since December 2005.
9. United Natural Foods Inc. (unfI)
Connecticut’s United Natural is the largest publicly traded wholesale distributor of natural and organic food in the U.S. “They’re also experimenting with biodiesel in their trucks,” says Patsky. Market cap: $1.24 billion Share price: $29.31, down 15.3% over 12 months.
10. Whole Foods Market (WFMI)
Austin-based Whole Foods has not only redefined the natural-grocery sector, but, says Pope, “they’ve set the bar very high in the sustainability area.” In January 2006, WFMI announced it had purchased enough wind-power credits to offset 100 percent of its energy usage. Market cap: $7.34 billion Share price: $52.02, down 19.4% over 12 months.
What are the hottest sectors in the green-technology market? Here are some of the leaders, with details on growth potential provided by the experts at Portland, Oregon–based Clean Edge, one of the country's top clean-tech research-and-consulting firms.
Photovoltaic cells are semiconductors that absorb sunlight and convert it into electricity.
Portable and relatively compact; the most efficient power alternative for remote areas.
A shortage of processed silicon, currently the main material in solar cells, makes the technology relatively expensive; alternatives are being explored.
Commercial revenues for solar technologies are expected to grow from $11 billion in 2005 to $51 billion by 2015.
British Petroleum, Kyocera, Sharp Corporation, Q-Cells AG, SunPower, Suntech Power
Modern wind turbinessome 300 feet high, with blades 200 feet in diameterconvert wind currents into mechanical energy and electricity, which is transferred to power grids.
Highly efficient; ten-story, industrial-size wind turbines can produce one kilowatt-hour of power for less than five cents (retail electricity today costs about ten cents per kilowatt-hour).
The high costs of steel and carbon fiber used in turbines make wind power relatively expensive. Notsuitable for low-wind areas (best in coastal and mountain regions).
Experts estimate that commercial revenues for wind-power technologies will grow from $12 billion in 2005 to $49 billion by 2015.
Enercon, GE, Vestas
Biofuels are alcohol- or vegetable-oil-based; they include methanol (made from manure), ethanol (corn or grasses), and biodiesel (soybeans, corn, etc.).
Clean-burning, relatively inexpensive to produce, and can be sourced domestically. Considered viable replacements for gasoline.
Some biofuel factories run on pollution-heavy coal or natural gas. Reliance on corn-based ethanol would require millions of acres of cornfields.
Observers see commercial revenues for biofuels, led significantly by ethanol, growing from $16 billion in 2005 to $53 billion by 2015.
Altra Inc. (ethanol), Celunol Corp. (cellulosic ethanol), Imperium Renewables (biodiesel)
Batterylike fuel cells convert the chemical reaction between pure oxygen and hydrogen into electricity, which can then be used to power cars, buses, and trains.
Efficient, quiet, and clean (byproducts are heat and water). Unlike batteries, fuel cells won’t degrade over time.
Isolating pure hydrogen gas, which doesn’t occur naturally, can be costly. Most fuel-cell tech is still in R&D mode, so mass-market adoption is probably decades away.
Commercial revenues for fuel-cell technologies are predicted to grow from $1.2 billion in 2005 to $15 billion by 2015.
Ballard Power Systems of Canada, Toyota Motor Company
Molecular biologists and genetic engineers produce organisms that actually create energy sources in the form of hydrogen molecules (H2) or ethanol.
Could be an inexhaustible resource: Imagine meeting the world’s energy needs by growing fuel in petri dishes.
Expensive; perhaps decades away from practical use. And then there are the ethical concerns associated with creating new forms of life…
Because development is still in the research stage, future potential is not yet known.
Genome pioneer J. Craig Venter, through his new Rockville, Marylandbased company Synthetic Genomics