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Which way does the wind blow?

It became one of the biggest investment themes of 2007 but will climate change funds lose their appeal as the economic climate gets more hostile?

Firms win plaudits for launching such funds and a raft of them chose to do so towards the end of 2007.

Schroders, F&C and Jupiter, to name but a few, all launched UK vehicles as debates about Kyoto, the Stern report and even the Conservative Party embracing environmental issues raised awareness in the mass market in a way that no marketing drive from an investment house could have dreamt of.

But is that enough? Or has the credit crunch cooled everyone’s appetite?

Demand for such funds was on the rise in 2007, with figures from Lipper Fund Feri showing that 15.2 per cent of all equity sales came from these sorts of products in 2007, compared to 0.6 per cent in 2005.

F&C launched its global climate opportunities fund in September 2007 and the group is keen to promote the fund as more than just an alternative energy vehicle, but rather a holistic approach to climate change. The offering has nine investment themes, split into three categories of mitigation, adaptation and supporting services.

Co-fund manager Sophie Horsfall says the fund got off to a promising start having been down 5 per cent, compared with an index loss of 18.5 per cent.

“It’s been a strong start, driven by stock-specific investments and the better ones have not been the more obvious options like solar power. We’ve been using stocks that have been used in similar F&C portfolios for the past five years.

“We are seeing a growth in the stock universe for climate change as well as an increase in protocols to tackle climate change.”

Schroders’ global climate change fund is also a year old, having launched in the belief that climate change was likely to be dominant investment theme of the next 20 years.

Having reached £16m, fund manager Simon Webber says the vehicle has performed well barring the last three months. He says: “There has been interest and I believe an important part to that has been the diversity seen in the five investment themes of energy efficiency, low-carbon fossil fuels, clean energy, sustainable transport and environmental issues.”

The past three months have not been so easy with the fund falling 10.1 per cent thanks to an unwinding of both the commodities and energy sectors.

“We are not immune as seen by the fall in commodities but we do feel that high agriculture prices are here to stay long-term. What help is the spread both geographically and in the size of companies, with 12 of them under a $2bn market cap?”

Jupiter ecology and climate change solutions fund manager Charlie Thomas says the rationale for bullishness is threefold, namely the rising price of oil, political change in the US and the rise in awareness over energy security.

“It remains a niche investment but that may not necessarily be a bad thing. The problem is that our universe has around 1,000 stocks with around 90 solar companies and I can’t see many crawling through them when you’ve got the likes of HBOS and Lloyds TSB happening.

“It remains esoteric but the US, in particular, is passing more regulation to the benefit of companies associated with climate change, proving attitudes are starting to change.

“One thing that does need to change is the perception it is all about the likes of wind turbines. The majority is about improving what is already there, such as infrastructure and insul- ation efficiency. The small renewables angle is what captures people’s attention.”

Hargreaves Lansdown head of research Mark Dampier says: “There is something in these products but they are still in their early stages. The trouble is that although they are broader than a purely environmental fund, a global investment option still offers so much more. The damage some have incurred from agriculture is an example of that, but it is a case of seeing how it goes.”

Worldwide Financial Planning IFA Nick McBreen claims there is huge demand, particularly among the younger generation, who can hold these products in the longer term.

He says: “There have been mixed comments from IFAs on the subject of climate change, if not green funds in general. But take away the smoke screens and the marketing drives and the bottom line is that these products can make a difference as ethical funds – which are far more restricted in terms of investment – and can compete with mainstream counterparts.

“There is so much mileage left in these products – ideal for the likes of Child Trust Funds – given they are only at an early stage in the market.”

Director of 35 Finance Jeremy Davis says: “It is definitely a positive investment for the future but I would say unconstrained investors should still maximise their investment to 5 per cent of their portfolio.

“It is a long-term process, with that area of the market continuing to evolve and build momentum, but we like the products produced from the likes of Schroders already in the marketplace.”

More investment news and analysis at: www.moneymarketing.


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