Investments in green, or renewable energy-based companies, are becoming an accepted component of advice-driven investor portfolios, a new survey of financial advisors reveals.
The results showed that some 55% of advisors allocate at least a portion of their individual and institutional clients’ portfolios to green investments, including companies focused on water, renewable energy, clean technology, and carbon strategies. The survey was conducted on behalf of TerraVerde Capital Management in February and March 2010. TerraVerde manages a hedge fund of funds that invests in strategies seeking to reduce the global carbon footprint.
“To think, not five years ago, probably fewer than 10% of the financial advisors stewarding America’s private and institutional wealth even knew what it meant to invest in alternative and clean fuel solutions,” said Richard Bookbinder, Managing Member of TerraVerde Capital Management and author of Fund of Funds Investing: A Roadmap to Portfolio Diversification.
“Our data clearly points to the fact that more than half of those advisors are allocating a portion of their clients’ portfolios to so-called ‘green’ companies, whether it’s through hedge funds, mutual funds, exchange-traded funds or individual securities. The future of this asset class shows great promise, as the number of green companies with meaningful returns continues to grow.”
Of the advisors whose clients are invested in green, half access the asset class via mutual funds (50%), followed by individual securities (32%) and funds of funds (12%). Approximately 10% of advisors access green companies through exchange-traded funds. Other vehicles used to access green investments include hedge funds (4%) and private equity funds (2%).
When asked to rank on a scale of 1-5 (with five being the highest level of understanding) their knowledge level of the green asset class, 38% of advisors ranked themselves a 4. 34% said they were a 3, and 18% acknowledge a low level of understanding, rating themselves a 2 or lower.
Knowledge level aside, some advisors simply avoid the asset class altogether, with 20% indicating green companies don’t pose a good investment opportunity; 16% saying the asset class doesn’t have enough of a track record; and 14% pleading “lack of green industry understanding.”
55% of advisors don’t think there’s sufficient progress being made in Washington on energy independence or climate change issues. Yet, 35% of respondents believe government should not get involved in the way public companies address matters of environmental responsibility. However, it’s big government that stimulates growth in green, say 45% of advisors, while 38% say future of green depends on interest from venture capital funds.
Overall, 38% advisors have seen an increase in client demand for green investments over the last 18-24 months.
Bookbinder said: “What we regard as ‘alternative’ today will one day be one of the primary sources of energy around the globe. This sets the stage for investors to not only do something good for the environment, but good for their portfolios. Yes, we have a ways to go, but if we repeat this same advisor survey even a year from now, I think we’ll be pleasantly surprised at how mainstream the green asset class has become.”
Results are based on responses from 56 advisors in the U.S. with $50 million – $1 billion-plus of assets under management regarding their clients’ portfolio allocations to “green” investments.
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