Marketwatch reports that so-called "green" stocks, the underlying investments of environmentally-focused socially responsible funds, could be heading into speculative bubble territory.
'It was just a year ago where we would have somebody arguing with us over whether or not the market would ever favor green investing,' says Jack Robinson, co-manager with Matt Patsky of the Winslow Green Growth Fund. "What a difference a year makes.'
Indeed, some green fund managers now see the share prices of many companies tied to environmental sustainability as, well, unsustainable. 'Now you've got to worry about valuation and some of the speculative bubbles that are building,' Robinson says.
'I'm certainly concerned that you have too much hot money moving in,' says Eric Becker, co-manager of the Green Century Balanced Fund , which keeps about two-thirds of its portfolio in stocks and the rest in bonds. 'There are investors who are going to get burned.'"
We feel investor exuberance (and lack thereof) is a key factor in investing decisions. There are many ways to keep tabs on how overblown an investing idea is. Initial public offering volume and excitement is one indicator, as is rising prices and investor enthusiasm.
However, just because a few stocks go public and a few others rise does not mean the party is over. We consider fund investor behavior to be a little more indicative of bubbles and future bad performance than hot stock performance in an area. On each fund data page on MAXfunds.com, you will see our “Hot Money Index” which measures how much money is flooding into a fund. We also measure hot money across all funds in a fund category.
You'll note that many of these green funds do not have much hot money, meaning they are not bringing in the hundreds of millions (and sometimes billions) of new cash we often see before an area stalls or worse, crashes. But before jumping to the conclusion that this means there is much more upside here, be aware that most of this sort of “trendy” money these days goes into ETFs, not old fashioned open end funds.
While the typical fund investor hasn’t put many chips on the alternative energy table in open end funds in the last year, ETFs have had more success. We now have new ETFs like PowerShares WilderHill Progressive Energy (PUW) and PowerShares Wilder Clean Energy Portfolio (PBW). The later is tipping the scales at around a billion dollars, pretty big money for a gimmicky new fund. New fund launches are another negative sign – fund companies tend to launch new funds near the top not near the bottom of any cycle. PBW has brought in more than ten times what the newest open end alternative energy fund has brought in – Guinness Atkinson Alternative Energy (GAAEX) - even though this open end fund has performed better than the ETF.
Bottom line, if you look just at open end funds, we have more to go in this speculative area. When you bring in ETFs, we look a lot closer to the top in alternative energy stocks.
Green funds mentioned in the article:
Winslow Green Growth Fd (WGGFX)
Portfolio 21 Fund (PORTX)
Sierra Club Stock Fund Inv (SCFSX)
Green Century Balanced (GCBLX)
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