By Liz Moyer
These are dark days for investors in Big Oil. That doesn't mean
clear skies for investors in clean energy.
The sharp plunge in oil prices has dragged down the share prices
of many global energy giants. But a number of companies that
provide alternatives to fossil fuel have taken a similar hit.
U.S. oil prices have fallen 15% this month through Wednesday,
and the $10.6 billion Vanguard Energy Fund, a mutual fund that
holds shares in large oil and gas producers, has fallen 4.9%. In
the same period, the New Alternatives Fund, one of the largest
mutual funds focused on alternative energy, is down 6.2%.
Government policies and social acceptance may support the
investment argument for more environmentally friendly energy
sources.
But investors who worry about the outlook for traditional energy
providers--or who don't want to support the industry with their
investments--should be alert to the risks of investing in clean
energy and consider other options, such as putting money in funds
that simply avoid oil and gas producers, financial advisers
say.
A large-scale shift to solar, wind and other energy sources will
take time. Moreover, falling oil prices could slow adoption of
alternatives by making some of them economically undesirable or
impractical.
"It's a very volatile sector," says Burlington, Vt.-based Harris
Roen, who publishes research on alternative-energy investments in
the Roen Financial Report. "For a portion of someone's portfolio,
the more speculative portion, it's fine. There is the potential for
big gains. But short-term there is a lot of flux. You have to be
prepared for that."
High-profile investors have gained widespread attention this
year for making plans to dump investments in fossil fuels or bet on
clean energy.
The Rockefeller family announced in September that it would shed
its holdings in coal and other fossil fuels. Billionaire investor
Warren Buffett said in June that Berkshire Hathaway, the company he
heads, plans to double an existing $15 billion commitment to
renewable-energy projects, including wind farms.
Many investors are drawn to such investments both because of
social aims and potential profits. Environmental factors, such as
clean and renewable energy, are incorporated into the management
strategies of 672 mutual funds, hedge funds and other investment
funds that collectively have $2.9 trillion in assets, according to
the Forum for Sustainable and Responsible Investment's annual
report.
The New Alternatives Fund, whose largest holdings include
Brookfield Renewable Energy Partners, which operates
renewable-power facilities, and NextEra Energy Partners, which owns
an array of clean energy projects, is up 1% this year. The fund has
$171.3 million in assets as of Nov. 30, according to Chicago-based
investment-research firm Morningstar. The fund charges 1.16% in
annual fees, or $116 on a $10,000 investment, as well as a sales
charge of up to 4.75%. Accrued Equities, an investment firm which
runs the New Alternatives Fund, says it will introduce a similar
mutual fund that carries no sales fee next month.
The Guggenheim Solar exchange-traded fund, the largest ETF that
focuses on alternative energy, includes Hanergy Thin Film Power
Group, a solar-energy firm, and SunEdison, a semiconductor and
solar-technology company, among its largest holdings. The fund has
$262 million in assets, and charges 0.7% in annual fees. The fund
is down 7.4% this month and down 5.9% so far this year.
The recent pullback across the energy sector could provide an
opportunity to invest in alternative energy at a discount, says Tom
Moser, a financial adviser with High Impact Investments in Marana,
Ariz., who specializes in the sector.
"We are not at the point where the big energy companies are
going away," he says. "But this is a transition. If one goes out 10
years from now and looks backward, they will probably say to
themselves, 'I should have seen it.'"
Still, the portfolios that Mr. Moser recommends to clients are
diversified across dozens of stocks, and include both
alternative-energy firms, such as Sun Edison, and companies that
emphasize sustainability but that aren't directly involved in
producing energy, such as Lifeway Foods, a health-food
purveyor.
Energy and organic food "are like kissing cousins," he says.
Some funds, meanwhile, avoid fossil fuels but don't particularly
focus on alternative energy, and therefore may avoid much of the
pain or gain that can be associated with energy stocks.
For example, the Pax World Growth Fund says that it "strives to
be fossil-fuel-free" by not investing in companies whose mission is
to extract or refine fossil fuels, according to the prospectus.
The fund holds shares of other large mainstream companies, such
as Apple, PepsiCo and Google. The fund is down 3.3% this month and
up 8% this year. It has $202.8 million in assets and charges 1.24%
in annual fees.
Write to Liz Moyer at liz.moyer@wsj.com
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