One great green fund begets another

Only a handful of socially responsible funds earn their keep. Winslow Green Growth is at the top of that list. So is offspring Green Solutions.

When Winslow Green Growth fund published its newsletter earlier this year, the headline proclaimed “This Time is Different.” Alternative energy, says manager Jack Robinson, will become a huge part of the global economy—not fall to pieces again the next time oil prices collapse. Robinson, 65, is a canny investor who knows full well that that phrase has long been branded “The four most dangerous words in investing.” But this time, things do look different.

Only a handful of socially responsible funds earn their keep. Small-company fund Winslow Green Growth (888-314-9049, ticker symbol WGGFX) is at the top of that list. And Green Solutions, which will launch in November, holds similar promise. Over the past five years, Green Growth has returned an annualized 24%, putting it in the top 2% among funds that invest in small, fast-growing companies, according to Morningstar, a fund research firm. Don’t expect sizzling returns like that to continue. But Robinson has returned an annualized 15% on similarly managed private accounts since 1994.

Green Growth is a roller coaster of a fund. In 2002, for instance, it lost 38%. Small, fast-growing companies are risky to start with. Green Growth generally owns just 25 to 35 stocks, making it riskier. But putting 5% to 10% of your truly long-term money in this fund makes sense. A similar amount in newcomer Green Solutions is about right.

Green Solutions will specialize exclusively in companies that seek to improve the environment. It will mainly buy stocks of slightly larger companies than Green Growth does, meaning it should be less volatile. Still, don’t look for low risk in a fund that invests heavily in alternative energy—for now, a tiny sliver of the  economy. Over the past four years, private accounts managed similarly to the new fund have returned an annualized 19%.

Green Growth is—and Green Solutions will be—different from most socially responsible funds. Rather than merely looking for companies that meet minimum ethical standards, Robinson starts by hunting for companies that actually help the environment. Almost 40% of Green Growth’s assets are invested in companies seeking solutions to environmental problems. Almost all Green Growth’s money will be invested in such companies. Next Robinson looks for environmentally “clean” companies. “You can be socially responsible without hurting your bottom line,” he says.

WFI Industries (WFI.TO) “is probably our favorite stock today,” Robinson says. It trades at $29 Canadian on the Toronto Stock Exchange but is based in Fort Wayne, Ind. The firm produces geothermal energy, mainly for new housing developments. Pipes just five-feet underground can pump 55-degree air into houses and small businesses year round—cutting utility bills and saving energy. The stock trades at a rich 30 times earnings, but Robinson predicts earnings will grow 30% annually.

In solar energy, Robinson likes First Solar (FSLR). The company will “soon produce electricity in many parts of the country that is no more expensive that traditional power,” he says. First Solar has a huge cost advantage over most competitors because it doesn’t employ costly silicon. He expects the stock to earn a meager 65 cents a share this year, but to double that next year. The stock recently traded for $107. “It’s a very expensive stock, but it’s the best company in solar energy.”

As oil prices have soared, so has interest in alternative energy stocks, including these. Should oil prices plunge, these stocks will likely fall much further and faster than oil stocks because most trade at lofty prices relative to their sales and earnings. And concern about global warming is just becoming mainstream.

Could this turn out to be another Internet bubble? Certainly the stocks may nose-dive. Those of us with a little gray in our hair remember the 1970s when oil prices went through the roof, only to crash just as unexpectedly. But I think governments and industry will get serious about global warming sooner rather than later. So even if these stocks go into a freefall, I think they’ll come roaring back. Green Growth offers a way to make money—albeit with stomach-churning plunges along the way—and help the environment. Green Solutions looks just as good.

Steven T. Goldberg is a partner in Tweddell Goldberg Investment Management www.tginvesting.com, a fee-only investment advisor in Silver Spring. Please send questions, for print or otherwise, to steve@tginvesting.com.

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