DARIEN, Conn. — A Rogers Casey Inc. researcher is arguing that targeted bets on “green” companies could prove superior to more sweeping strategies that purge polluters from institutional portfolios.
In the consulting firm's recent white paper, “Environment-Friendly Investing: The Different Shades of Green,” author Jamil Zraikat said small allocations to companies positioned to profit from “green” trends could add “spice” to an institutional portfolio, while providing the most direct environmental bang for the buck.
In an interview, Mr. Zraikat, an associate in the firm's research group, and Chris Thompson, director of global equity manager research, said with more clients studying the options available for environmentally friendly portfolio construction, the white paper isn't proposing a one-size-fits-all solution. Instead, the paper attempts to spell out the trade-offs presented by different “shades” of green investing.
“Dark green” strategies, which avoid companies and sectors whose activities are deemed harmful to the environment, inevitably “leave some alpha on the table” by narrowing the investible universe, the paper notes. One current example: strategies that avoid oil-related firms altogether handicapped their odds of matching benchmark indexes in recent years, when those stocks were rallying strongly.
“Light green” strategies, which employ more flexible screens, allow for portfolios that track sector weightings for widely used benchmarks, by holding the most environmentally friendly firms in each sector. By taking account of specific green products or company-level goals to minimize greenhouse gas emissions, firms such as General Electric Co. and BP PLC can still find their way into portfolios.
A third approach cited in the white paper involves investing in “environmentally proactive” companies whose products are positioned to profit from growing concerns about global warming and other environmental issues. While past returns are no guarantee of future success, the paper noted that two institutional funds, Dublin-based KBC Asset Management Ltd.'s Eco Water Fund and its Alternative Energy Fund, racked up annualized returns of 27.8% and 39.4% a year for the three-year period ended Sept. 30, 2007.
Two examples of proactive companies are Minneapolis-based Pentair Inc. and Switzerland's Geberit Group. Pentair, a diversified industrial manufacturing company with clients in the U.S., Europe, and Asia, has a water segment that offers products and systems used in the movement, storage, treatment, and uses of water. The globally oriented Geberit Group is the European market leader in plumbing technology.