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October 14, 2005
Rising Oil Prices Fuel Investment Returns in Renewable Energy for New Alternatives Fund
    by William Baue

The first environmental mutual fund is also globalizing its reach to capitalize on innovative developments in alternative energies in other countries.


Rising fossil fuel prices are sparking interest in renewable energies and activity in alternative energy is globalizing. This combination is powering strong investment returns for the New Alternatives Fund (ticker: NALFX). Founded by father-and-son team Maurice and David Schoenwald in September 1982 as the seminal environmental mutual fund, the fund been on a hot streak lately with one-year returns of 21.54 percent.

These results place the fund in the ninth percentile compared to peer funds of similar style and asset class as well as other attributes--including both those in the socially responsible investing (SRI) realm with New Alternatives and those in the mainstream. In other words, New Alternatives has outperformed 91 percent of like funds over the past year. Looking at the longer term, the fund's three-year annualized returns stand at 18.18 percent, placing it in the 29th percentile.

All fund statistics cited in this article are based on data provided to SocialFunds.com by Thomson Financial Network covering the period ending September 30, 2005.

"There certainly has been increased interest in alternate energy in the US, but I think the interest is greater overseas and has been for a number of years," David Schoenwald told SocialFunds.com. "I'm sure the higher oil and natural gas prices have contributed to the investment interest and stock performance in alternative energy."

"Outside of the US, there is also interest in the environment specific to meeting goals and obligations of the Kyoto treaty, separate and apart from the price of oil," he added.

The Kyoto Protocol, which sets country-level limits of allowable emissions of greenhouse gases (GHGs), came into force after Russia ratified the treaty in February 2005. While the US and Australia are among the countries that have not ratified the treaty, all companies operating in ratifying countries must comply with it regardless of where they are based.

New Alternatives is adapting to the increasingly global nature of alternative energy.

"More than a third of our assets are invested in foreign companies," stated Mr. Schoenwald, who noted that this falls just below the 35 percent limit for foreign holdings stipulated by the fund prospectus. "We have asked our shareholders to remove the limitation."

"Over the past year, we've done well with a number of the foreign holdings with interests in renewable energy, particularly in Spain," he added. "A company that has done relatively well this year is Acciona from Spain--its renewable energy division, EHN, is involved in wind, small hydro, and biodiesel, among other renewables."

At 4.31 percent of the portfolio, Acciona (ACA.MC) represents the top holding in the fund. The next two top holdings are also based in Spain: Abengoa (ABG.MC--4.14 percent) deals in biomass, solar, and aluminum recycling, while Gamesa (GAM.MC--3.62 percent) is involved in wind parks and turbines, and owns US-based wind power developer Navitas.

The fund is primarily invested in alternative energy and renewable energy, though it extends to other sectors that are energy-related, such as recycling and natural foods.

"If less energy is used to produce recycled steel and aluminum than to make steel and aluminum from iron ore and bauxite, there is a net energy saving," explained Mr. Schoenwald. "If less petroleum-based fertilizer is used in organic farming, that also represents energy savings, not to mention less water pollution."

Natural foods represent about 3.5 percent of the portfolio assets, while recycling-related holdings "are quite small and have been disappointing," according to Mr. Schoenwald.

The current spike in interest in alternative energies does not surprise Mr. Schoenwald, as he has been able to discern cycles of interest over the two-plus decades he's been tracking this field.

"There is a greater interest when energy prices are high, for example in the Jimmy Carter Administration, and there was greater interest during the California power crisis a couple years ago," said Mr. Schoenwald. "There appears to be greater interest in clean energy and the environment when there is a Democratic President and Congress, for example in the Clinton Administration."

The current Republican Administration and Congress have expressed antipathy toward alternative and renewable energies and conservation. For example, the Republican Study Committee (RSC) chaired by Representative Mike Pence (R-IN) released a report in September 2005 entitled Operation Offset that proposes options for reducing the federal budget.

For example, the report proposes eliminating the US Environmental Protection Agency (EPA) Energy Star program to save $835 million over the next ten years, despite the fact that the program saved US residents about $10 billion last year, according to the 2004 Energy Star Annual Report.

The New Alternatives Fund includes energy conservation as a form of alternative energy. It also screens nuclear power, oil, and coal burning, as well as implementing other traditional SRI exclusionary screens such as alcohol, tobacco, weapons, gambling, and animal testing and positive screens such as human rights, labor relations, and anti-discrimination. The fund, which has an expense ratio of 1.18 percent and assets of $59.8 million, holds cash positions in five socially responsible banks that support community investment, including ShoreBank in Chicago, Self-Help Credit Union in North Caroline, Chittenden Bank in Vermont.

 

 
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