In the United States, energy advocates for years
have divided into two camps over alternative energy fuels: Those who
think wind, solar energy, biofuels, geothermal energy and ocean or wave
power are not worth developing (damn the effort), and those who think
of them as a viable future alternative to coal, oil and natural gas
(damn the critics).
Now, suddenly, the prospects for renewable and other clean energy sources seem brighter-thanks to high gasoline prices; consensus that climate change is a major problem; and growing demands from China, India and other developing countries that are straining traditional energy resources.
On the investment side, alternative energy has emerged as a distinct sector with long-term investment potential. A new entrant, Calvert Investments, best known for its socially responsible mutual funds, this week at a press briefing in New York City, launched the Calvert Global Alternative Energy Fund (Ticker: CGAEX), and released results of a survey showing increased investor interest about climate change and alternative energy investments (http://www.calvert.com).
The "Calvert Climate Change/Alternative Energy Survey," conducted for Calvert by Opinion Research Corp. (ORC) found more than three of four U.S. investors, out of 1,094 surveyed, are concerned about global warming and climate change issues. Nearly nine of 10 investors agreed that alternative energy investments represent a dual opportunity to support the environment and generate profit at the same time. However, only one in five investors queried responded affirmatively that their financial advisor had discussed investing in alternative energy.
Steve Falci, Calvert's chief investment officer, equities, said the fund was a response to increased demand from financial advisors, individual investors, and institutions seeking an alternative energy allocation in their clients' portfolios for diversification purposes. "There aren't a lot of these vehicles out there," said Falci. "It's important for (advisors) to sit down with clients and see how much to allocate to alternative energy. We're providing an additional vehicle for diversification they haven't had before."
Falci said the fund offers diversification potential for traditional socially responsible investors, as well as all global investors.
Jens Peers, head of ECO Funds at Dublin-based KBC Asset Management International and lead manager to the Calvert fund, noted the performance of alternative energy stocks had doubled over the past three years, following overall strengthening in the energy sector. In 2006, the sector was up 50%; so far this year alternative energy stocks are up 25%, and trading at an average P/E of 35.
Peers said interest in alternative energy has accelerated worldwide as a result of growing interest in climate change and the need for specific products to meet this appetite. "We expect strong fundamentals to continue in the next few years, driven by increasing prices in fossil fuels, while at the same time (we predict) prices will fall for renewable energy sources," Peers said after the briefing.
KBC is targeting 50 to 70 stocks for the fund's portfolio, with a projected breakdown that would include: 30%, United States; 60%, European, and the balance in Asia, mainly Japan and China. Worldwide, the investable universe of alternative energy stocks consists of approximately 120 companies, Peers said.
He noted both the public and private sectors have accepted the need for alternative fuels, and debate is now moving toward the political side. Peers said China has committed the equivalent of US$100 billion to develop renewable energy sources between now and 2020. In the U.S., a group called the U.S. Climate Action Partnership, comprising a number of conglomerates-General Electric, Caterpillar, British Petroleum, DuPont and Duke Energy, among them-is spearheading a call for government action.
For investors, the significance is that climate change is finally on the federal government's agenda, said Bennett Freeman, Calvert's director of research and social policy. "There will be (global-warming) caps (on noxious emissions); there will be regulation at the federal level, sooner rather than later," said Freeman, noting even the Bush administration had done an about face on climate change, though it prefers countries set targets rather than binding global-warming caps. "There is a real mainstream awareness of the issue," said Freeman, who doesn't expect immediate action even with a Democratic Congress, though he didn't rule it out.