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It's not always easy being green

Environmental funds and stocks can be worthwhile, but don't count on them exclusively to fund your retirement

BY TERRENCE BELFORD

Green investing – trying to tot up financial returns by putting your hard-earned cash into environmentally sensitive companies – may deliver a certain moral satisfaction but is not enough to fund your retirement plans, according to industry experts. The chief problems are a lack of completely green companies to invest in, a shortage of green companies with a history of reliable profits, and the challenges of cutting through the hype and hyperbole to identify those that are truly green in their operations.

“Green investing seems to be the latest niche-market buzzword,” says Tracy Broeze, an investment adviser with Cumming & Cumming Wealth Management Inc. in Oakville, Ont. “The investment industry is always on the lookout for a new niche market to sell into.” The term “green investing” can range from buying stock in companies that make products and services aimed at solving environmental problems to progressive firms with the best environmental practices.

Ms. Broeze says she has had clients looking for green investments, specifically in the alternative energy fields of wind and solar-power generation.

“First, suitable investments were very difficult to find, and then, most of those that I did identify made little investment sense,” she says. “You have to remember you are investing to make money, not save the world.”

Diversification in any portfolio is one of the basics of successful long-term investing, says Mark Grammer, vice-president for investments at McKenzie Financial Corp. in Toronto -- and placing all or a substantial part of a portfolio into any single category such as green investments breaks that fundamental rule.

An added risk is that many green companies are too young to have a history of solid financial performance to base investment decisions on; as well, many focus on developing technology, which may not yet have proved its value.

Socially responsible investing (SRI), on the other hand, is a broader category, says Robert Gorman, a vice-president at TD Waterhouse Group Inc. in Toronto. It offers a much broader range of investment choices, many of which have a proven track record of success. SRI takes into account more than environmental criteria; for example, it also looks at how companies treat their employees and their communities.

“If you go to websites like the Social Investment Organization (www.socialinvestment.ca) you will find nine different fund companies that have socially responsible funds. Some of those reflect environmental issues,” Mr. Gorman says.

He points out that investors can make direct investments into a variety of green-related index funds, which are based on the performance of a basket of companies all in the same sector. Among them are PowerShares Wilderhill Clean Energy Portfolio (PWB/AMEX), Claymore Social Energy Index (TAN/NYSE), Market Vectors Solar Energy Fund (KWT/NYSE) and PowerShares Water Resources Portfolio (PHO/AMEX).

Investing in indices spreads the risk posed by a single corporate investment.

People with large portfolios will find green investing easier than those with more modest ones, says Penny Knuff, a portfolio manager with Fiduciary Trust Co. International in San Mateo, Calif. The reason is that they usually have a portfolio manager to do the research for them.

“People with portfolios larger than $2-million can come to us and define what they want in their portfolio, what they are passionate about. It is then up to people like me to do the research and recommend a basket of investments that meets their social responsibility demands while still making sense from an investment point of view,” Ms. Knuff says.

Social investing is essentially very personal, she adds. Ms. Knuff cited one client who is keen on environmental and aboriginal issues, but is also a heavy smoker. “So in her portfolio we have investments in corporations that reflect her social responsibility concerns – but we also have shares in tobacco companies,” she says.

For those keen on green investing, the experts offer the following tips:

  • Start by defining your goals from both a socially responsible and an investing point of view. “The goal is to make money, not just feel good,” says Mr. Grammer.


  • Research, research, research. That means not only identifying green companies but also understanding their technology, their financial performance and their chances for future success. “This can often be the greatest challenge,” says Ms. Knuff. “There is tons of material on the Internet but the trick is separating the hype from the substance.”


  • Given the lack of product, you may want to limit green investments to a certain percentage of your portfolio. The rest can be devoted to other socially responsible investments with a proven track record. “There are now mutual funds, which may devote perhaps 15 per cent of their portfolio to green investments and spread the remainder over a variety of socially responsible ventures,” Mr. Gorman notes.


  • Diversify your green holdings just as you would others to limit risk. If you support renewable energy, for example, spread your money among all forms, not only wind power or solar power.


  • Be wary of stock issues with valuations that seem high based on actual financial performance. “Many are based on unproven, evolving technologies,” Mr. Gorman says.


Special to The Globe and Mail

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