Editors' note: The original version of this article incorrectly stated that the maximum sales charge for Calvert Global Alternative Energy was 5.75% rather than 4.75%. The Fool regrets the error.
When Sheryl Crow wrote that a change would do you good, she probably wasn't referring to climate change. As concerns over rising temperatures continue to spark debate, everyone can agree that interest in potential solutions, such as alternative-energy companies, is red-hot. Investors interested in targeted exposure to companies likely to benefit from climate change concerns may find that four funds focused on environmentally minded companies provide a good place to start.
Meeting the demand
In response to investor interest, a number of climate change funds were launched in 2007. Since they're new, they haven't grown their assets much, nor have they been tested in the market. The funds described below have a growth orientation, and their portfolios have a significant amount of overlapping holdings, especially among top wind-turbine producers like Spain's Gamesa and the Danish company Vestas.
The New Alternatives Fund (NALFX) is the grandfather of environmental funds -- the first mutual fund to have significant investments in alternative energy. The fund is run by the father-son team of Maurice and David Schoenwald. Initial investments came from friends and neighbors of these two lawyers, making this fund truly a grassroots effort.
With a portfolio of nearly 60 securities and a minimum 25% exposure to alternative energy, the fund includes companies like geothermal developer Ormat Technologies
The Calvert Global Alternative Energy Fund (CGAEX) has its portfolio invested in renewable-energy sources such as wind, solar, and tidal, along with some utilities with a growing role for renewable energy. Irish manager KBC Asset Management sub-advises the fund from Dublin, using both fundamental and quantitative components to select stocks.
The fund holds roughly 50 securities, diversified across countries including the U.S., Spain, and Germany. Top holdings include SunPower
Winslow Green Solutions Fund (WGSLX) weights the clean-energy sector most heavily in its portfolio, followed by resource efficiency, green building, and environmental services. The fund holds around 50 securities, with top holdings including First Solar
DWS Climate Change Fund (WRMAX) targets clean technology such as wind and solar stocks for 60% of its investments. Firms that make energy-saving products, such as high-quality insulation and compact fluorescent bulbs, make up another 20% of the fund's holdings. The remaining 20% is concentrated in natural-resource management companies, including environmental consultants. The fund has significant exposure to Europe and the U.S., holding more than 100 securities. Top holdings include Solarworld and Emerson Electric
Quick fund facts
Fund |
Investment Min. |
Inception |
Expense Ratio |
Net Assets |
---|---|---|---|---|
NALFX |
$2,500 |
9/82 |
1.25% |
$260 million |
CGAEX |
$2,000 |
5/07 |
1.85% |
$153 million |
WGSLX |
$2,500 |
11/07 |
1.45% |
$15 million |
WRMAX |
$1,000 |
9/07 |
1.75% |
$66 million |
Should you invest?
Global warming may be the bogeyman of the 21st century. But that doesn't mean you can't make money from the companies working to solve the problem. Many of the companies owned by climate change and clean/green tech funds own are located outside the U.S., so you should consider your other international investments before taking on more exposure overseas.
In addition, there are the usual risk factors related to foreign securities, such as currency fluctuations, political and economic changes, and market risks. Also, these funds are relatively pricey, with both high expense ratios and loads in some cases.
After huge run-ups in recent years, many of the stocks these funds own have seen significant corrections since the beginning of the year. Whether that represents the beginning of a persistent downtrend or merely a great opportunity to buy is anyone's guess. The sector continues to attract interest from both investors and the general public.
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