Green fund finds profit in `cleans,' not `dirties'

Your Money

June 25, 2006|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICE

It can pay to have a social conscience, especially if you think green.

Socially conscious investing mutual funds, which factor environmental, social and corporate governance consequences into their selections, have been attracting more interest, with assets growing from $12 billion in 1995 to $178.7 billion today, according to the Social Investment Forum.

A performance leader in this group is the environmentally motivated Winslow Green Growth Fund. Though somewhat volatile, it has a three-year annualized return of 18 percent and a one-year return of 17 percent.

"Hurricane Katrina was an inflection point for more people understanding the correlation between carbon release, global warming and storms," said Jackson Robinson, president of Winslow Management Co. in Boston and portfolio co-manager. "People are now saying, `Look, we've got a problem with energy and need big, bold, new green solutions.' "

The "Enron effect" has helped spark interest in socially responsible funds. More than 400 corporate-governance resolutions and 180 social and environmental shareholder resolutions are being taken up at U.S. corporate meetings this year, some sponsored by socially responsible funds.

Retirement accounts also are increasingly offering social investment fund choices and contributing to their asset growth. For example, retirement fund giant TIAA-CREF, whose CREF Social Choice Account has amassed more than $8 billion in assets, recently announced a new department dedicated to social investing.

"There's been a mainstreaming of social investing as investment firms respond to what their clients want," said Timothy Smith, president of the Social Investment Forum and senior vice president of Walden Asset Management, a division of Boston Trust and Investment Management Co.

"Though social investing differs, depending on your particular beliefs, you do find people from across the investor worlds rallying together behind a number of issues," Smith said.

More than 200 socially screened funds operate in the United States. Stock, bond, money-market and balanced (stock and bond) choices use screens based on what each considers the preferred path. Originally, religious beliefs and avoidance of tobacco, alcohol or defense companies dominated, but today funds take stands on a variety of lifestyle and other issues.

Investors should study an individual fund's convictions and screens along with its returns so that they won't receive an unpleasant surprise later. Examining holdings and why they were selected is crucial to determining whether you agree, because that's the point of investing in these funds.

Included in Winslow Green Growth Fund's portfolio is Zoltek Cos., a maker of the carbon fiber wrapped on windmill blades. It is expected to have an enormous earnings increase because it has a backlog of orders due to a shortage of wind-power equipment, Robinson said.

Because there is no single clean-energy solution, the fund owns investments in ethanol, bio-diesel, fuel-cell, solar and wind suppliers. That sometimes means obscure firms whose stocks are traded overseas, such as London firms Clean Air Power Ltd. - which makes engines that run on both natural gas and diesel fuel - and Clipper Windpower PLC, which builds wind farms and turbines.

But it has also owned familiar names Herbalife Ltd., Whole Foods Market Inc. and Green Mountain Coffee Roasters Inc. because the managers believe these firms have positive corporate policies and make life better. Its largest holding, SurModics Inc., uses technology for less expensive delivery of innovative drugs.

"We break everything into greens, cleans and dirties and avoid dirties that make products that kill people," Robinson said. "When we started doing this in 1991 I could identify five companies delivering bona fide clean products or services, and now there are more than 250."

Andrew Leckey is a Tribune Media Services columnist.

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