Apart from a paragraph long mention the rest of the article would be off topic, but I know that xrouchos and makd are really bullish on green stocks so I posted it here. If you want it removed please pm me because If i get a violation i will loose points.
Save the world and make money at the same time
Bruce Gillespie, Financial Post Published: Wednesday, February 06, 2008
Ever since he began investing 15 years ago, Philippe Dunsky has tried to put his money where his mouth is. A business consultant who advises clients on energy efficiency and green power, he is steeped in environmental issues, and the values that he brings to his work are the same as those he tries to apply to his portfolio strategies. "I have a very strong belief that we live on a single planet and that we need to do a much better job than we have at taking care of it for future generations," he says. "That's a strong consideration in any investment decision that I make.";
Up until recently, however, Dunsky found it difficult to live up to these ideals in his portfolio strategy. There simply weren't that many investment vehicles catering to his values. But times are changing. Today, Dunsky - and the growing number of investors who share his concerns - are discovering a new range of green options that bring the need to save for retirement in line with the desire to save the planet. And they are coming from an increasing number of financial services firms, including some of the best-known names in the Canadian industry.
The force behind the trend, of course, is rising public concern for environmental and sustainability issues, especially as it relates to climate change, one of the dominant themes on today's political agenda. That's fuelling a desire among Canadians to make changes, whether that involves swapping incandescent light bulbs for compact fluorescents or wondering if they really feel good about the returns that $100 oil or spiralling growth in China may be pumping into their portfolios. Indeed, according to a recent poll conducted for Investors Group Inc., more than three-quarters of Canadians said they plan to change their behaviour and adopt green practices. Seventy-six percent said investing in renewable sources of energy is the morally right thing to do, while 64% said they believed such investments will deliver good returns.
Those kinds of numbers are enough to make any asset manager sit up and start to consider launching green products of his or her own. But just because new investment vehicles are coming to market, that doesn't mean it's simple for Canadians to put their money to work with clear consciences. The trend is young and, therefore, fraught with uncertainty. And one of the biggest questions is also one of most fundamental: What makes a green investment "green" in the first place?
"Everybody's branding themselves now as a green investment," says Sucheta Rajagopal, a certified financial planner with Hampton Securities in Toronto. "Everybody has a sustainability report, but what do those reports really say? One of the challenges ahead for investors is identifying who's really doing what they say they're doing, and who's hopping on the bandwagon."
That's doesn't mean good opportunities don't exist, or that they are particularly hard to find. But if you're interested in this market, enter it with caution, just as you would with any investment. How to start? As with most things, once you understand the questions - can you make money, how do funds define environmental sustainability and how should you evaluate opportunities - you're most of the way to finding the answers.
CAN GREEN INVESTMENTS MAKE MONEY?
Here's something to think about: The best performing stock on the Toronto Stock Exchange in 2007 was a Toronto-based company called Timminco Ltd., a maker of specialty metals used in solar-power applications. Over the course of the year, its shares went ballistic, closing on Dec. 31 at almost $22, up from 30¢ on the year's first day of trading - an increase of more than 7,000%.
The Timminco example, though extreme, proves that savvy stocks pickers certainly can profit from investing in environmental business. But most Canadian investors don't have the time or the expertise to build their own portfolios from scratch. Most opt for the relative safety and predictability of managed funds. And, with one or two exceptions, most of the green-labelled vehicles available today are simply too new to have track records that demonstrate their ability to generate strong returns.
That said, there are indications that well-run funds may be rewarding over the long term. Consider: Green investing is essentially an offshoot of the socially responsible investing (SRI) concept, which has been around since the late 1980s. In these funds, as with environmental funds, managers use investing "screens" to weed out companies that they feel don't live up to certain philosophical standards, which can include issues ranging from sustainability and safety to human rights and corporate governance. Likewise, screens can be used to direct investments towards companies that are deemed to be sector leaders in best practices.
Although critics have complained in the past that bending investment strategies to suit philosophical ideals threatens returns, there are several examples of SRI funds actually outperforming their benchmark indexes. The Jantzi Social Index (JSI), for example, is a screened replica of the S&P/TSX 60. Since its launch in 2000, it has made an annualized return of 8.5% compared to the S&P/TSX 60's 8%. In the U.S., the Domini Social 400 Index, which screens the S&P 500 for SRI values, has posted an annualized return of more than 11.7% since its inception in 1990, compared to 11.2% for its benchmark. Those results bode well for the potential of new green investment vehicles. What's more, there are a couple of established Canadian funds that carry green brands - although some investors may question their composition (more on that in a minute) - that have turned in similar performances: The Acuity Clean Environment Equity Fund has returned 19.8% over the past five years, while the Desjardins Environment Fund boasts a 10-year annualized return of 8%.
BUT HOW GREEN IS "GREEN"?
This may be one of the biggest conundrums facing environmentally motivated investors. After all, different funds are based on different concepts of what kinds of investments promote sustainability - and not all are going to match up with the attitudes and philosophical objectives of individual investors.
Take the Desjardins Environment Fund. Part of the reason for its attractive 10-year performance is its investment in the booming Canadian energy sector, which accounts for 25% of its overall composition. Among its top 10 holdings are firms such as Suncor Energy, Canadian Natural Resources and Petro-Canada - corporate names that will give the shudders to serious tree-huggers.
Likewise, the Acuity Clean Environment Fund has investments that some might question. True, it has strong representation from sectors such as alternative energy, water treatment and waste management. Its holdings include companies like Universal Energy Group Ltd., which is building the largest wheat-based ethanol plant in North America, and Canadian Hydro Development Inc., which produces certified green power from a mix of wind, water and biomass resources. At the same time, however, it is invested in firms such as Petrobank Energy and Resources Ltd., an oil and gas exploration and development firm active in the Athabasca oilsands, and pipeline firm TransCanada Corp.
But just because these funds invest in companies that are targets for environmentalists doesn't necessarily mean their commitment to sustainability is wanting. (Both funds also invest in green-tech and non-polluting firms.) That's because they specifically back firms that are leaders in environmental technology and best-practices - a reasonable position for investors who believe that the goal of sustainability will be achieved in stages and that traditional companies play an important role in that development. Equally important, this approach allows investors to participate in sectors producing strong returns while encouraging businesses to improve their environmental records.
For investors uncomfortable with this middle ground, a new class of purely green funds is beginning to emerge. The newest is Investors Group Inc.'s Investors Summa Global Environment Leaders Fund, launched this past November. Summa Global Environment, with just $3.7 million in assets under management at this time, is still too new to report returns. But fund manager Daniel McClure says its investment strategy is focused on four broad areas: renewable energy, clean water technology, pollution remediation technology and companies with progressive practices that are setting standards in their respective industries.
"The overall goal is to invest in companies that are environmental leaders around the world," McClure says. "We like companies that are creating innovative or emerging solutions to environmental issues or have environmental practices that set a standard within environmentally sensitive industries." Among the fund's initial holdings are Brampton, Ont.-based organic food producer and distributor Sunopta Food Group, German solar-cell maker Q-Cells AG and Babcock & Brown Wind Partners, a wind energy company based in Sydney, Australia.
Similar to Summa Global Environment is the new TD Global Sustainability Fund, launched this past September. Its top 10 holdings include firms like Veolia Environment SA, a Paris-based global environmental services firm specializing in water and waste management, Denmark's Vestas Wind Systems SA and General Electric Co., a sector leader in developing wind and solar energy products.
WANNA PICK STOCKS?
Given the individual value judgments that go into environmental investing, some investors will be tempted to build portfolios on their own. Fair enough, but don't let zeal for sustainability get the better of due diligence, especially when it comes to investments in new, green firms. "Many companies are small caps, so they are higher risk,"; says financial planner Rajagopal. "As with any small cap, you have to ask, how much of my portfolio do I want to allocate to that?";
David Levi, president and chief executive of GrowthWorks, a Vancouver-based venture capital fund management company that invests in a range of green energy technologies, advises investors to evaluate green opportunities the same way they would evaluate investment candidates in any sector. That is, they should look for firms that are fully competitive and that can make a strong business case. "You want companies that have a unique proposition to provide power or some way to reduce the use of power in a commercial way," he says.
Levi's investment picks include Xantrex Technology Inc., which makes machines used to convert solar and wind power from DC to AC residential and commercial use, and NxtGen Emission Controls Inc., which produces technology that reduces nitrogen oxide emissions from diesel trucks, while increasing mileage.
If you look beyond stocks, there are a number of alternative energy income trusts now on the market that give investors access to pure green plays without the risks of small-cap volatility. Among them are trusts like Algonquin Power Income Fund, Great Lakes Hydro Income Fund, Boralex Power Income Fund and Creststreet Power Income Fund, and they've won support from market players like R.J. Gorman, chief portfolio strategist with TD Waterhouse, who includes many in his income fund portfolios. "We didn't go looking for green power investments, but they came up and made an awful lot of good sense," Gorman says. "You have a steady demand because your contracts tend to be very long term, and with governments. And because traditional sources of electricity are going up in price, you can be reasonably assured your stream of income is going to go up as well.";
WHAT DOES IT TAKE TO BE A GREEN INVESTOR?
In the end, green investing comes down to individuals determining where their own values lie and determining what kind of tradeoffs they're willing to make in balancing ideals against returns. After that, they simply have to do the legwork to ensure their investments are aligned with their standards. They need to read prospectuses. They need to evaluate screening methods. They need to study business models and consider the experience and quality of corporate management teams.
Most companies now make environmental or sustainability reports available over the Internet as well, although trying to compare one company's environmental record to another's can be tricky. But Rajagopal says the process is becoming easier as more firms adopt standardized reporting processes, such as those established by Global Reporting Initiative (GRI), a group based in Amsterdam that has worked with business leaders and other stakeholders to produce a reporting framework for assorted issues related to social responsibility.
That's good news for investors like Dunsky, who says it's easier to find green investing opportunities now than when he first started looking for them. It still isn't simple, but Dunsky says the extra leg work involved in creating a sustainable portfolio is worth it. "Making sure my investments don't exploit vulnerable people and that they create meaningful jobs is important to me. But the issue of sustainability is first and foremost in my mind,"; he says. "Today, there's no reason not to align your values with your investment goals. There's a plethora of tools out there, and the record shows that there is no loss in trying to think about the future."
