The poor performance of some sectors aiming to slow climate change is pushing money managers to cast further afield for investments that both carry green credentials and are likely to post better returns.
Some renewable-energy stocks, such as those in solar and wind industries, have fallen spectacularly in recent years, belying hopes that they were poised to break out.
Money managers say this poor performance is due in part to a lack of hoped-for policies to help these industries grow. As a result, say the managers, they are looking at other areas of the market that are part of the climate-change story, such as recycling and energy efficiency. Even eBay Inc., as a promoter of reusing goods, fits the bill.
“Nobody’s questioning the long-term prospects, market share or gains of [renewable energy] sectors, but over the medium [term], it’s not been that good,” said Vipin Ahuja, manager of Allianz RCM EcoTrends Fund (trading symbol AECOX). “So people are looking elsewhere for sustainable stories for the next couple of years.”
Mr. Ahuja’s fund, which he joined about one year ago, is down 19% a year in the past three years, according to data from Morningstar Inc.
The deteriorating prospect for new policies to combat climate change was palpable at the recent United Nations Climate Change Conference in Cancun, where delegates from nearly 200 countries met to hash out a possible extension of the Kyoto Protocol and other policies. The more sober atmosphere this year, particularly compared to the gathering’s predecessor in Copenhagen, reflected toned-down hopes that the world’s largest polluters would reach agreement on policies to combat global warming and promote renewable energy.
Those downgraded expectations have left their mark on solar-panel stocks, once Wall Street darlings.
In mid-2008, First Solar Inc.’s stock traded at close to $300. Today, it is near $137.
It is a similar story with many of First Solar’s peers, including SunPower Corp., whose stock has fallen to under $14 from close to $100 in the past 30 months. The MAC Solar Energy Index is down an annualized 27% in the past three years.
Others in the renewable-energy space have also suffered, such as wind turbine maker Vestas Wind Systems A/S, which has seen its stock price fall to less than $31 a share on Monday from more than $140 in 2008.
One example of how politics has hurt the renewable sector is the failure to pass a federal renewable portfolio standards policy. The rule would have forced utility companies across the U.S. to supply a certain amount of their energy from renewable sources.
“That discouraged many utilities from signing, for example, agreements for wind [farm] installations,” said Colm O’Connor, a portfolio manager at Kleinwort Benson Investors who is part of the management team of Calvert Global Alternative Energy Fund (CGAEX), which is down an annualized 26% over the past three years, according to Morningstar.
“In the past year, we’ve avoided wind and solar investments,” said Richard Mercado, manager of London-based F&C Global Climate Opportunities Fund.
Mr. Merchado said the fund has been looking more at the natural-gas sector, and—in a theme several money managers repeated—also at so-called mainstream companies with a climate-change slant. For example, eBay is one of the fund’s investments as it “promotes reusing products and not throwing them out,” said Mr. Merchado.
Mr. Merchado said the most represented sector in the fund is energy efficiency. Several other managers pointed to developments in LED technology as an example of the trend. As the costs come down, use of light-emitting diodes in anything from televisions to traffic lights increases, and lighting for commercial spaces becomes possible.
Another example of looking at efficient, rather than renewable, energy is demand-response technology. These services let utilities manage consumer demand more efficiently by relaying energy-usage data back to providers.
Mr. O’Connor said he plays demand response by investing in meter makers such as EnerNoc Inc. and Comverge Inc.
Ben Allen, director of research at Parnassus Investments, said that since 2007, his firm has invested in Waste Management Inc., which he said has been focusing on energy efficiency by turning waste into electricity. Another company Parnassus likes is Cooper Industries PLC, in part because of the company’s growing LED business.
Allianz RCM’s Mr. Ahuja said his fund’s holdings in LED-related companies went from zero to about 15% in the past year.
