Best Investments: Alternative energy and climate change investment funds, part IV

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Alternative Energy and Climate Change Mutual Funds, Part IV | Alternative Energy Stocks

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Alternative Energy and Climate Change Mutual Funds, Part IV Tom Konrad CFA

Cherry picking the holdings of green energy mutual funds.

So far in this series I've concentrated on trying to pick the best oftheAlternative Energy and Climate Change Mutual Funds. This is adifficult task, because while I found in Part III that mostofthefunds' performance has been better than comparable index ETFs,these mutual funds' costs are quite high, even by the standards of mostmutual funds, as I discussed in Part I. In part II, I triedlooking at the sectorbreakdownofthe funds' holdings, to see if I could explain some oftheir performance that way. It turns out that funds that buy themost solarstocks have underperformed in the past.

The underperfomance of solar-heavy funds confirms one of the principlesof alternative energy sector selection that arise from commonmisunderstandings abouthow Alternative will re-shape our economy. I went into themin more detail in partII, but in short they are:
Underweight SolarOverweight biomassproducers compared to their customers, biofuelproducers.Focus on EnergyEfficiencyandConservation.Invest in the Electric Grid.Favor AlternativeTransport over the personal car.What follows is my attempt to build a portfolio from the stocks ownedby these mutual funds, but conforming to the principles above.

Fund Holdings: Solar Stocks

Many of the funds own large quantities of FirstSolar Inc (FSLR), SMA SolarTechnology (S92.DE), MEMCElectronicMaterials(WFR), and JASolarHoldings(JASO). First Solar is the largest holding ofthese mutual funds overall, accounting for 6.6% of the WinslowGreenGrowthFund (WGGFX). Overall, the average fund is about24% allocated to solar, something I hope to improve on by leaving themout of the portfolio I'm building.

Fund Holdings: Biomass

By far the largest holding biomass holding in these companies is Sino-ForestCorp.(TRE.TO), a commercial forest plantation operator inChina. The second largest holding is DelticTimber Corp. (DEL), but it's only held by one fund, the DWSClimateChangeFund Class S (WRMSX). I'm looking for stocksheld by at least two funds for this portfolio.

Fund Holdings: Energy Efficiency andConservation

The top energy efficiency holding is also my personal favorite, WaterfuranceRenewableEnergy(WFI.TO), a manufacturer of GeothermalHeatPumps. Also held in quantity are RubiconTechnology(RBCN), which sells mono-crystalline sapphire and othercrystals to the Light Emitting Diode (LED) industry, and LED industryleader CreeInc(CREE). In conservation, we have watersystemrepair firm PureTechnologies Ltd. (PUR.V).

Fund Holdings: Electric Grid

The top electric grid holdings were meter-maker Itron (ITRI),andtransmission contractor QuantaServicesInc (PWR), both of which I've written about in thesepages.

Fund Holdings: Alternative Transport

These funds are more focused on Climate Change than peak oil, soalternative transport stocks are few and far between, but one that'sowned by three funds is Smart Grid and Smart Transport stock TelventGit S.A. (TLVT). In order to get a little more representationin this sector, I'm also going to include rail supply company WabtecCorporation (WAB), even though it's owned by only one fund, WGGFX.

Green Energy Portfolio

This is my suggestion of a portfolio, which should performbetter than most of the green energy mutual funds because of bettersector selection and lower costs: TRE.TO, WFI.TO, RBCN, CREE, PUR.V,ITRI, PWR, TLVT, and WAB, equally weighted. That's 11% Biomass,45% Efficiency and Conservation, 27% Electric Grid, and 17% AlternativeTransportation. It's not representative of the market, but we'retrying to beat the market here, not just match it.

I'll take a look back at this portfolio next year to document how ithas performed relative to the mutualfunds.

DISCLOSURE: Long PUR.V, WFI.TO, PWR.
DISCLAIMER: The information andtrades provided here are for informational purposes only and are not asolicitation to buy or sell any of these securities. Investing involvessubstantial risk and you should evaluate your own risk levels beforeyou make any investment. Past results are not an indication of futureperformance. Please take the time to read the full disclaimerhere.
Posted by Tom Konrad on November 21, 2010 09:44 PM | Alternative Energy and Climate Change Mutual Funds, Part IV

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Comments

This is a very useful review.
http://www.financemetrics.com/stocks-and-mutual-funds-which-ones-for-you/

Posted by: Parag Shah

| November 25, 2010 11:58 PM

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