By Sam Mamudi
A DOW JONES COLUMN
The poor performance of some sectors aiming to slow climate
change is pushing money managers to cast further afield for
investments that both carry green credentials and are likely to
post better returns.
Some renewable-energy stocks, such as those in solar and wind
industries, have fallen spectacularly in recent years, belying
hopes that they were poised to break out.
Money managers say this poor performance is in part due to a
lack of hoped-for policies to help these industries grow. As a
result, say the managers, they are looking at other areas of the
market that are part of the climate-change story, such as recycling
and energy efficiency. Even eBay Inc (EBAY), as a promoter of
reusing goods, fits the bill.
"Nobody's questioning the long-term prospects, market share or
gains of [renewable energy] sectors, but over the medium it's not
been that good," said Vipin Ahuja, manager of Allianz RCM EcoTrends
Fund (AECOX). "So people are looking elsewhere for sustainable
stories for the next couple of years."
Ahuja's fund, which he joined about one year ago, is down 19% a
year in the past three years, according to data from Morningstar
Inc.
The deteriorating prospect for new policies to combat climate
change has been palpable at the recent U.N. Climate Change
Conference in Cancun, where delegates from nearly 200 countries met
to hash out a possible extension of the Kyoto Protocol and other
policies.
The more sober atmosphere this year, particularly compared to
the gathering's predecessor in Copenhagen, reflected toned-down
hopes the world's largest polluters would reach agreement on
policies to combat global warming and promote renewable energy.
Those downgraded expectations have left their mark on
solar-panel stocks, once Wall Street darlings.
In mid-2008 First Solar Inc.'s (FSLR) stock traded at close to
$300. Today, it's at about $132.
It's a similar story with many of First Solar's peers, including
SunPower Corp. (SPWRA), whose stock has fallen to about $12 from
close to $100 in the past 30 months. The MAC Solar Energy Index is
down an annualized 27% in the past three years.
Others in the renewable energy space have also suffered, such as
wind turbine maker Vestas Wind Systems A/S (VWDRY, VWS.KO), which
has seen its stock price fall to less than $30 a share this week
from more than $140 in 2008.
One example of how politics has hurt the renewable sector is the
failure to pass a federal renewable portfolio standards policy. The
rule would have forced utility companies across the U.S. to supply
a certain amount of their energy from renewable sources.
"That discouraged many utilities from signing, for example,
agreements for wind [farm] installations," said Colm O'Connor, a
portfolio manager at Kleinwort Benson Investors who is part of the
management team on Calvert Global Alternative Energy Fund (CGAEX),
which is down an annualized 26% over the past three years,
according to Morningstar.
Looking Elsewhere
"In the past year we've avoided wind and solar investments,"
said Richard Mercado, manager of London-based F&C Global
Climate Opportunities Fund.
Merchado said the fund has been looking more at the natural gas
sector, and--in a theme several money managers repeated--also at
so-called mainstream companies with a climate-change slant. For
example, eBay is one of the fund's investments as it "promotes
re-using products and not throwing them out," said Merchado.
Merchado said the most represented sector in the fund is energy
efficiency. This focus chimed with that of other managers, several
of whom pointed to developments in LED technology as an example of
the trend. As the costs come down, use of LEDs in anything from
televisions to traffic lights increases, and lighting for
commercial spaces becomes possible.
Another example of looking at efficient, rather than renewable,
energy is demand-response technology. These services let utilities
manage consumer demand more efficiently by relaying energy usage
data back to providers.
O'Connor said he plays demand response by investing in meter
makers such as EnerNoc Inc. (ENOC) and Comverge Inc. (COMV).
Ben Allen, director of research at Parnassus Investments, said
that since 2007 his firm has invested in Waste Management Inc.
(WM), which he said has been focusing on energy efficiency by
turning waste into electricity. Another company Parnassus likes is
Cooper Industries PLC (CBE), in part because of the company's
growing LED business.
Allianz RCM's Ahuja said his fund's holdings in LED-related
companies went from zero to about 15% in the past year.
Sticking with it
But though solar and wind have suffered recently, that's not the
whole tale. For example, while there's no federal renewable
portfolio standard, O'Connor said that 29 states have their own
standards. And the American Recovery and Reinvestment Act, the
stimulus bill, created two programs of credits to promote renewable
power projects.
What's more, Ahuja noted that global demand for solar energy
grew 100% in 2009. And, he said, some solar companies have seen
their share prices grow, or at least hold up better than others, in
recent years, such as China's Trina Solar Ltd. (TSL) and Yingli
Green Energy Holdings (YGE).
Some sectors in the climate change theme, such as renewables,
are subject to policy volatility, said Bruce Kahn, senior
investment analyst at DB Climate Change Advisors, a unit of
Deutsche Bank (DB).
"I agree that the area is struggling in the short term, but
we're investing in the long-term trend and trading around the
volatility," he said. "It tells me that you can't pick sectors when
dealing with this kind of volatility -- it's a stock-pickers
universe."
-By Sam Mamudi, 415-439-6400; AskNewswires@dowjones.com