Green Mutual Funds Look To New Leadership

As ethanol production costs surge, green mutual funds are shifting their focus to solar and wind energy.

“There’s no consensus that biofuels actually produce substantially more energy than they take to make,” says Morningstar mutual fund analyst Michael Herbst, adding that wind and solar “actually reached profitability,” and “top the list of interest for active mutual fund managers."

Unlike corn-based ethanol, wind and solar release minimal carbon, making them not only more economical, but more green.

As the green space builds commercial interest and a large roster of public companies, the investment world has become more educated on green mutual funds. What’s more, rising gasoline prices and media attention on global climate change have put eco-friendly investing in the spotlight:

"As soon as this starts hitting our pocket books, we start thinking this isn't a bad idea,” says Lipper senior analyst Tom Roseen.  “People want to be more self-sufficient and make the world a better place.”

Thus far, the two funds that have attracted the most attention in the U.S. are the Winslow Green Growth fund and New Alternatives Fund, which is also the oldest. (Read our interview with the founders.)

Winslow Green Growth, a small cap growth fund, places big bets but has delivered big returns.

"By definition of the space we're in, our fund is even more volatile, because we are a concentrated portfolio of companies," says the fund’s manager Jack Robinson. "We place big bets on small companies with big ideas.” Robinson’s favorite companies include First Solar and SunPower.

Since half of Winslow's assets are in companies associated with energy efficiency and the other half in eco-friendly companies outside the green sector, Herbst says Winslow is less vulnerable to government regulation and oil price declines.

That’s an instructive lesson for investors. All green funds are not created equal. Morningstar and Lipper use different criteria in classifying green mutual funds. Morningstar, for instance, has nine funds in its green category, which includes environmentally friendly companies.

Lipper puts them into a broader "socially responsible" category, covering a universe of almost 200 funds. One half of them are environmentally friendly to one degree or another. Only seven, however, are green equity-based funds.

Says Roseen: "A lot of people are talking the talk but still not walking the walk."