Hot Trend in Funds: Global Warming, Climate Changes
August 6, 2007
Global warming and its effect on climate changes isn't just the topic du jour for cocktail parties. This worldwide theme is making its way into mutual fund strategies. Fund advisors are hoping to get both a warm reception from investors and generate hot investment returns.
Deutsche Asset Management of New York, advisor to the DWS Scudder Funds, is the latest to jump on the changing climate theme. In mid-June, the firm registered to offer four share classes of the DWS Climate Change Fund later this summer or early fall. The fund will invest the majority of its assets in the common stocks of companies whose businesses center around climate changes, although that definition has yet to be formally detailed.
The fund will be sub-advised by Deutsche Bank's Frankfurt, Germany asset management office. Nicholas Huber, a senior portfolio manager and a director of Deutsche Asset Management in Frankfurt, will co-manage the fund with one other portfolio manager.
While details of the new DWS fund are still sketchy, it's likely the U.S. fund will be managed similarly to the German mutual fund that Huber has been managing for German investors since March. The parallel German DWS Invest Climate Change Fund invests worldwide in companies promoting carbon dioxide- and energy-efficient technologies, those offering renewable or alternative energies and those involved in some form of climate protection.
Allianz Global Investors jumped into the global warming, ecology-friendly sector this past January with the launch of its Allianz RCM Global EcoTrends Fund. But Allianz's fund debuted not as an open-end mutual fund but, rather, as a closed-end interval fund that offers periodical tender offers to investors.
This structure allows the fund to take less liquid positions in smaller technology companies, said Christoph Hofmann, director of closed-end funds at Allianz.
RCM Capital Management of San Francisco, an Allianz subsidiary, manages the fund using a bottom-up investment strategy.
The fund buys companies within three self-defined sectors. The eco-energy sector includes companies that offer products, technology and services associated with energy efficiency or that manufacture alternative or regenerative energy. The pollution control sector includes firms contributing to the control or improvement of the environment and those engaged in recycling and storage. The clean water sector focuses on firms involved in producing, storing, distributing and filtering water, as well as those engaged in disinfection or desalination of water.
"We think all three sectors have tremendous growth opportunities," Hofmann noted.
So far, the fund has raised $120 million. "We are finding a lot of interest in this fund as financial advisers and their clients are reading about these things every day," he added.
But don't think Allianz has totally altruistic intentions in its quest to invest in ecology-friendly businesses. Although some socially responsible fund companies have been early to the environmental investment arena, there's money to be made for investors, fund executives said.
KLD Research & Analytics of Boston, an independent investment research firm, was early out of the gate more than two years ago when it launched The KLD Global Climate 100 Index in July 2005, the first global index focused on climate change solutions.
In its first two years of operation, two Japanese funds have licensed to track the index, and this past May, the asset management division of broker/dealer Fixed Income Securities of Monument, Colo., licensed the index for use in a new unit investment trust. Now plans are underway for the asset management arm of Germany's Commerzbank to track it through a new, German-sold mutual fund.
In June, socially responsible advisor Calvert Funds of Bethesda, Md., debuted its Calvert Global Alternative Energy Fund. It invests in global companies focused on alternative energy sources, including solar, wind and biofuels (see MME June 18, 2007).
While the mutual fund is new to Calvert's lineup, the firm has been focused on environmental issues since its 1982 inception, said Bennett Freeman, Calvert's director of research and social policy. Since the 1990s, Calvert has shifted its environmental policy to include a focus on sustainability. "Over the last several years, we have sharpened our focus," he added. "There is no issue that Calvert focuses on more sharply than climate change."
Edward Bousa, portfolio manager of The Hartford Dividend and Growth Fund, a value-oriented fund sub-advised by Wellington of Boston, hasn't radically changed the fund but has shifted some focus to global trends.
The fund overweighted the energy sector because China is expected to be a big energy consumer. A couple of years ago Bousa also turned his attention to agriculture, believing that ethanol production would drive the sector higher.
Bousa also looked for ways to play up the theme of increased carbon regulation.
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