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Renaissance Capital announced it's Green IPO index. Hold your breath for when the CBOE gets a hold of it - we'll have a green futures market in earnest!

Apparently, it's not just us normal joes who see green in Green - the richest of the rich are making tracks. Now, if only my phone would ring....

Environmental emissions will make it harder for traditional industry to compete with green. Duh.

Not only are the richest of the rich going green, the smartest of the smart are too.

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If you have links you want to submit, email them to links(at)smuginvestments.com.

Error in Seeking Alpha Article

For those of you who read my recent post on Seeking Alpha, a math error was pointed out to me (it was a late night and Excel was not my friend). The point still remains the same, but the numbers are much more reasonable - here is the revised chart:

CGW	-13.22%		CGW	-13.22%
EVX	-2.86%		DBA	44.88%
GEX	14.39%		DSI	-20.61%
PBD	-3.54%		EVX	-2.86%
PBW	-9.06%		EWZ	30.05%
PHO	-4.65%		FXA	11.99%
PUW	-8.91%		PAXHX	-6.67%
PZD	2.41%		PBD	-3.54%
			PZD	2.41%
S&P 500	-19.69%		UDN	12.04%
			S&P 500	-19.69%
Overall:	-3.18%		Overall:	5.45%
v S&P:	16.51%		v S&P:	25.14%

The overall performance was -3.18% versus the overall performance of 5.45% in the diversified portfolio, an 8.63% swing.

That looks MUCH better, I was wondering what happened! Don't let my late night typos fool you, the strategy still works, especially in the long run. Thanks to imagomundi for catching the error!

Green Investing on a Budget: $10K Portfolio

So you have $10,000, you've read yesterday's post, you're all set up and ready to invest responsibly, and you have no idea where to start. First, you can start with our earlier posts: here, here, and here. It lays the baseline for what I'll talk about in terms of asset allocation.

Here are some good suggested portfolios for the $10K investor at varying risk tolerance / time horizon levels:

Concept: Complete Portfolio
Risk Level: High Risk
Timing: Long Horizon (5+ years)
Suggested Allocations:

PAXHX	14.50%	$1,450	Bond
DBA	17.50%	$1,750	Agriculture
EVX	15.00%	$1,500	Recycle
GRN	16.50%	$1,650	Low Carbon
PBD	18.50%	$1,850	Energy
DSI	15.00%	$1,500	Social
Cash	3.00%	$300

In this scenario, the one mutual fund, Pax World High Yield, adds bond exposure to round out the overall holdings. It has an average expense ratio (roughly 1%) and a very low minimum at $250 for non IRA accounts (IRAs have no minimum), so it fits well amongst the ETFs. DBA makes an excellent hedge in agriculture, as well. I couch this allocation with the disclaimer that many of the other pieces are correlated, since achieving maximum diversity with $10,000 is difficult to do. You should see some nice diversification with the agriculture play (typically, agriculture is zero to negatively correlated to the S&P) and the bond play making over 30% of the portfolio non correlated. In the future, it may make sense to add TAN, FAN, or FUE, the solar, wind, and biofuel ETFs, but for now, PBD covers all those bases. The second portfolio is for more green specific biased investors who only want $10,000 of coverage in their total portfolio, in which case more risk is warranted (and unavoidable).

Concept: Total Green
Risk Level: High Risk
Timing: Long Horizon (5+ years)
Suggested Allocations:

EVX	15.00%	$1,500	Recycle
FAN	10.00%	$1,000	Energy
FUE	10.00%	$1,000	Energy
GRN	15.00%	$1,500	Low Carbon
PBD	10.00%	$1,000	Energy
PHO	15.00%	$1,500	Water
PZD	12.00%	$1,200	Technology
TAN	10.00%	$1,000	Energy
Cash	3.00%	$300

Overall, this is 40% in green energies - biofuel, solar, wind, and a combination of all forms in PBD. Because it's technology intensive, it will have some pretty high beta and some pretty volatile motion. Ultimately, it's a position play in a larger portfolio, and not well suited to a $10K only investor. The water and recycling components (PHO and EVX respectively) round out the total green theme, with some carbon (GRN) thrown in as well. This portfolio is not for the faint of heart, and I certainly wouldn't recommend it to anyone as their total portfolio. But as a green piece that you can leave alone for a good long while, it's worth considering.

In the next few posts, I'll detail some low(er) risk $10K portfolios, and I'm going to start focusing on some day trading as well. Look out for more!

Green Investing on a Budget: Set Yourself Up

Let's be honest - 90% of investors fall below the $1M net worth requirement for many of the hedge type assets available to institutional types. In fact, as more and more high net worth individuals turn to alternative assets to complete their portfolios, most of us are stuck with either 1.) 401(k)'s run by someone else with broad, if not comical, options, or 2.) amounts too low to qualify for much in the way of diversification (see here for why diversification is important).

In light of this fact, it makes sense to review the way a $10,000 do-it-yourself-er can invest green and be diversified. It's definitely possible to have a responsible, diversified portfolio with $10,000. To do it, we considered the following things as paramount:

1.) Liquidity is a must. $10,000, even in a self directed IRA, should be almost entirely liquid. Typically, investors with only $10,000 in investable assets are in the accrual phase of investing, and may need to draw for big item purchases like a real estate or schooling. It makes sense to be liquid and stay liquid where possible.

2.) Avoid fees where possible. Avoiding fees is impossible - everyone charges you for everything you want to do in this country, especially when they think you won't notice. It is absolutely imperative to look at the fees for what you're investing. Can't get through the legalese? Email me - I'll do it for free. Fees, while the necessary bane of investing, can be limited by doing research and being prepared. The first and most important fees to understand are the trading fees. There is a great, competitive field for online discount brokerages now, and fees can be reasonable. Still, do some reading and find what's right for you - I use optionsXpress personally and love them, but read this and this when considering some of the bigger (and smaller) online firms. My advice: stay away from the Fidelity's and Merrill Lynch's of the world. If you already have a broker you like (or you have no choice about), read every prospectus when determining how much you're paying for someone to manage your investment.

3.) Unless you watch the markets daily, avoid turnover and emotional selling. This is a really basic rule, and easily the most difficult to follow. As a portfolio manager, it doesn't get easier. I bought AAPL stock on November 19, 2007 for $164.92 after fees. By December 31, 2007, it closed at $198.08, a solid 20.1% gain. As a long holder, I kept holding and watched my shares hit a low of $119.15 of February 26, 2008 close. That's a rollercoaster of up 20.1% to down -27.8% in a matter of 3 months - a 47.9% swing! The point? This will happen, and probably to you. Stock timing is like playing roulette. The best advice is don't try to time the market. Even Mark Twain said, "Buy good quality common stocks and hold 'em until they go up. If they don't go up, don't buy 'em." Green investments will go up and down, there will be good news and bad news, and the talking heads will blast it and praise it. Don't listen to sensationalism. Besides, if you've seen it on the news, you're already too late.

What about turnover? Well, that's just simple math - if you invest $10,000, a $15 trade fee represents 0.15% per trade. If you have a portfolio of 10 assets and you traded quarterly? - you're looking at being down 1.50% per quarter just in trade fees, or down 6% per year. That adds up quick, and digs deep into your returns. So keep the trades to a minimum in smaller accounts, or you'll end up on the losing end of trading fees!

4.) Be S.U.R.E. when you invest. At the risk of being cliche and using a ridiculous acronym, it helps remember. Whenever you sit down to make an investment decision, be:

Self aware, understanding your investment situation - don't go for the home run if you can't afford the strikeout.

Understand the costs involved.

Research your investment. It's not enough to just know what you own, if you want to be responsible, know who you own.

Execute and forget it. Assuming you're in it for the long hold, be in it for the long hold. Set yourself timelines if you have to (ie, no portfolio review for 1 year).

In the long term, especially using and index/ETF approach, there are very few total losers. In fact, even in the mutual fund world it's easy to look like a winner over the long term. If you're able invest, forget about it, and go on living, it's a good way to stay Zen.

Tomorrow's post: our suggestions of what to buy.

Green Report Card: 2Q2008

For basic retail investors, there are a lot of mutual fund options for green. We at Smug have steadily been analyzing some of them, at least in a superficial way (and in some more in depth ways), but with so many coming out, it makes sense to review them all in one place. Smug has created a basic scoring system that incorporates a combination of historical returns, risk measures (alpha, beta, R-squared, etc.), expense ratios, and front/back end load. It penalizes the youngest funds for the most part, but avoids overweighting funds simply for longevity. It's a good place to start if you don't know what you're looking for, and it combines some of our favorite green and socially responsible investments.

The first report card is below. If there are funds that you know of that don't appear, feel free to comment and let me know, we're more than happy to assess every green based asset.

Ticker	Fund	Score	YTD	1 Month	3 Month	1 Year	3 Year	5 Year	Expense
PAXHX	Pax World High Yield A	12	1.67%	0.82%	3.17%	1.70%	7.07%	7.43%	1.00%
NALFX	New Alternatives Fund A	6	-3.35%	4.30%	14.45%	5.00%	22.46%	19.82%	0.95%
TICRX	TIAA CREF Social Choice Equity	6	-2.05%	2.43%	7.02%	-6.31%	N/A	N/A	0.21%
AECOX	Allianz RCM Global EcoTrends Fund A	5	-8.00%	4.39%	15.50%	22.77%	N/A	N/A	%
SPEGX	Spectra Green Fund	4.5	-9.53%	0.73%	3.74%	2.07%	15.93%	13.55%	1.24%
PARWX	Parnassus Workplace Fund	3	3.39%	3.41%	11.07%	1.45%	8.69%	N/A	1.20%
VFTSX	Vanguard FTSE Social Index Fund	3	-4.97%	1.81%	6.18%	-13.80%	3.97%	6.62%	0.24%
CGAEX	Calvert Global Alternative Energy Fund	2	-5.95%	4.62%	16.73%	22.33%	N/A	N/A	1.85%
PORTX	Portfolio 21 Fund A	2	-1.95%	2.95%	6.06%	-4.21%	14.16%	15.21%	1.50%
SMCNX	SAM Sustainable Climate Fund	2	-2.66%	5.56%	13.30%	N/A	N/A	N/A	%
CSIBX	Calvert Social Investment Fund Bond	1	-0.15%	-0.19%	-0.99%	5.12%	4.04%	4.66%	1.11%
WGGFX	Winslow Green Growth A	0.5	-16.99%	6.23%	6.75%	-6.68%	12.42%	15.85%	1.45%
ARFFX	Ariel Focus Fund	0	0.64%	0.82%	6.05%	-7.66%	N/A	N/A	1.25%
DUPFX	Domini European PacAsia Social Equity A	0	-4.84%	0.86%	4.78%	-10.28%	N/A	N/A	1.58%
DEUFX	Domini European Social Equity A	0	-5.78%	0.33%	4.53%	-13.72%	N/A	N/A	1.60%
DPAFX	Domini PacAsia Social Equity A	0	-3.47%	-0.10%	4.71%	-2.14%	N/A	N/A	1.59%
DSEFX	Domini Social Equity A	0	-3.24%	1.47%	8.05%	-10.56%	5.07%	7.35%	1.08%
GAAEX	Guiness Atkinson Alternative Energy A	0	-7.45%	2.87%	13.51%	4.25%	N/A	N/A	1.64%
PGRNX	Paw World Global Green Fund	0	N/A	4.40%	N/A	N/A	N/A	N/A	%
PXINX	Pax World International Fund	0	N/A	2.68%	N/A	N/A	N/A	N/A	%
PXWEX	Pax World Women's Equity A	0	-2.41%	2.09%	6.28%	1.22%	6.39%	8.45%	1.29%
SMWNX	SAM Sustainable Water Fund	0	-1.11%	4.48%	6.99%	N/A	N/A	N/A	%
WGSLX	Winslow Green Solutions A	0	-8.88%	3.81%	8.66%	N/A	N/A	N/A	1.45%
MPIAX	MMA Praxis International Fund	-1	-4.34%	1.37%	5.13%	-1.12%	14.38%	15.79%	1.72%
GCBLX	Green Century Balanced Fund	-1	-4.05%	0.93%	2.73%	-5.14%	4.60%	8.11%	1.44%
GCEQX	Green Century Equity Fund	-1	-4.64%	1.57%	5.87%	-8.68%	4.73%	6.93%	0.95%
CSXAX	Calvert Social Index Fund	-2	-5.17%	1.49%	5.94%	-9.13%	4.87%	6.89%	0.75%
CSIEX	Calvert Social Investment Fund Equity	-2	-0.93%	2.38%	7.72%	2.77%	7.79%	8.51%	1.21%
CWVGX	Calvert World Values International Equity Fund	-2	-1.62%	1.86%	8.50%	-8.24%	13.61%	15.15%	1.60%
MYPVX	Citizen's Sustainable Core Opprotunity Fund	-2	-7.22%	1.69%	3.27%	-10.04%	6.95%	10.16%	1.29%
CSIFX	Calvert Social Investment Fund Balanced	-3	-2.29%	1.07%	2.89%	-3.65%	4.49%	6.22%	1.19%
CAAPX	Ariel Appreciation Fund	-3	-3.60%	1.94%	4.66%	-14.83%	3.40%	7.91%	1.12%
DSBFX	Domini Social Bond Fund	-4	0.76%	-0.70%	-1.77%	5.81%	3.42%	2.66%	0.95%
SCFSX	Sierra Club Stock Fund	-4	-4.75%	1.88%	4.64%	-12.92%	3.17%	6.71%	1.26%
BCIIX	Brown Capital Management International Inst	-5	-10.06%	0.16%	-0.08%	-10.62%	11.96%	16.18%	2.00%
CMIFX	Calvert Social Investment Fund Enhanced	-5	-3.14%	1.76%	5.85%	-10.51%	4.38%	6.91%	1.20%
CRATX	CRA Qualified Investment Retail (CRAIX)	-5	0.26%	-0.78%	-1.11%	5.06%	N/A	N/A	1.00%
WAEGX	Citizen's Emerging Growth Standard	-8	-4.58%	2.90%	6.68%	-5.94%	8.33%	10.45%	1.88%
ARGFX	Ariel Fund	-9	-8.47%	1.31%	0.83%	-20.24%	0.02%	7.88%	1.03%

And this quarter's top scorers in the Smug Asset Categories are:

Category	YTD Ret	Ave Score	Best Bet	Name
Agriculture	0.00%	0.00
Bond	0.64%	1.00	PAXHX	Pax World High Yield A
Diversity	-2.41%	0.00	PXWEX	Pax World Women's Equity A
Eco Reserve	0.00%	0.00
Energy	-6.70%	1.00	CGAEX	Calvert Global Alternative Energy Fund
Low Carbon	0.00%	0.00
Real Estate	0.00%	0.00
Recycle	-8.88%	0.00	WGSLX	Winslow Green Solutions A
Social	-3.87%	(1.18)	TICRX	TIAA CREF Social Choice Equity
Technology	0.00%	0.00
Total Green	-6.20%	2.70	NALFX	New Alternatives Fund A
Water	-1.11%	0.00	SMWNX	SAM Sustainable Water Fund

Obviously, it's been a tough year, mostly recently. That's why asset allocation matters (see our previous posts here, here, and here).

Note that this information is culled from various third party sources and we cannot vouch for its accuracy. Also note that the scoring system is a Smug model and subject to change in future posts.

Risk and Green Investing

My father in law just sent me an excellent op-ed piece written by Peter L. Bernstein in the New York Times (Sunday June 22nd paper) that got me thinking about risk. I've talked a bit about risk in creating your portfolio, and I've beaten to death already the fact that I am risk averse, but I think given current market conditions, it's not a bad idea to rehash the concept.

First and foremost, it's important to define what risk is exactly. Despite there being hundreds, if not thousands, of measures of volatility, the article points out that the market tends to muddle the definitions of risk and volatility. In short, volatility is NOT risk. Risk is the likelihood that something will happen (anything, really). Volatility in financial markets is usually a reaction to the perception that something will happen (just about anything). When working to manage risk, it's a twofold process: 1.) you need to treat the symptom (volatility), and 2.) understand "the consequences of being wrong" [Bernstein].

So what does that mean for your portfolio, and what does that mean for green investing in general?

Step 1: Treating the Symptom

Hedge funds and portfolio managers big and small have a multitude of tools, one of the primary being the VIX, the CBOE index tracking implied volatility of the S&P 500 thirty days in the future. As the VIX rises, it indicates speculators percieve increasing volatility in the S&P 500's returns in the next 30 days (it's more complicated than that, but that's the gist - see this for more). Other favorites include the Consumer Confidence Index, and the easiest, plain old standard deviation. With all these tools at our disposal, it's still almost impossible to predict actual volatility. But at least there are easy ways to lower it.

To lower volatility, the simplest solution is to invest in less volatile assets. For instance, high volatility periods often see a movement from common stock to bonds as people get nervous. This can tend to inflate bond prices in the short term, but volatility in bonds tends to be lower than in common stock, so the concept works. It's important to note that your return may suffer, but that often is the cost of fear. In the world of green investing, this would mean moving from something with high volatility (and often a chance at higher returns) like Renewable Energy (like this for example) to lower volatility investments like Socially Responsible Bonds (like this for example). What's better than removing volatility? Removing volatility without sacraficing returns. That's what non correlated diversification is meant to do, and why it's the cornerstone to modern portfolio theory - invest in multiple non correlated asset types to increase returns and lower volatility. For green investing, we've made it simple and done the work for you (if you want more detail, don't hesitate to give us an email or call, or keep reading as it comes out).

Step 2: Understand the Consequences

Understanding the consequence of an investment is absolutely necessary for any informed investor. At the risk of proselytizing, informed investing can mean the difference of thousands, if not tens or hundreds of thousands, of dollars. Most retail and institutional investors don't have the time, expertise, or desire to fully research their investments. This is why investment professionals exist. And even though I think most investment professionals are concerned with their own bottom lines, I believe that the free exchange of information is absolutely necessary in understanding the consequences of an investment. In ther end, a well informed decision is the key to any strong investment portfolio, as well as risk management. To that end, unless you manage your own portfolio, find someone you can trust. I said it before in my Beginner's Guide to Green Investing, but investment professionals are there for a reason (myself included).

The second part falls on you: decide how much risk you are willing to take, and what consequences you can live with. My former mentor said it best: "Why take more risk than you need to get where you're going?" It's an excellent philosophy in general, and it gets to the heart of the issue: your comfort level. The best risk management is not to take any more risk than you can afford, or if you do, never go outside your comfort zone.

Green Investing and Risk Management

In many ways, Mr. Bernstein makes a compelling argument for green and social investing. I believe green investing and socially responsible investing fundamentally address mitigating risk by understanding the consequence of investment. I'm not one to trust what I'm told even with responsible investments, but investing in a sustainable way in responsible companies avoids many foreseeable consequences like subprime meltdowns or Enron debacles. That green and socially responsible investments often have some measure at least of social risk management built in works in its favor.

In practical terms, a simple socially responsible screen (the standards are tobacco and firearms screens) avoids some measure of litigation risk, as these industries tend to be highly litigious in nature. Litigation leeches profits and creates unnecessary strain on cash flows. It can also lead to unethical behavior internally or public outcry externally, both of which generally have negative consequences in the long term. Green investments often employ more stringent corporate standards (the "reap what you sow" effect), but even the very nature of their products tend to err on the responsibility. Environmental consequences are often intangible and difficult to ascribe values, however the writers at Environmental Economics do an awesome job at breaking it down. The truth is, change to environmental policy in this country has taken so long in part due to our indifference when there is no clear pricetag attached. Even if the negative consequence avoided is somewhat intangible, it is still avoided just the same. That said, there are a number of risks avoided when comparing non renewable energy to renewable energy. For instance, coal plants are forced to comply with government regulations for pollution output (though enforcement has been virtually non existent for the better part of this decade). This places a burden on the coal companies to either pay fines or install equipment, both of which come at cost to the investors in the long run. A wind turbine farm, on the other hand, faces far fewer regulation due to its exponentially less pollutants, and can profit where coal can't.

Whereas Step 2 is in many ways built in for green investors, Step 1 (volatility) is most definitely not. This is where investment professionals can be most helpful, but as a good starting point, see our last piece on asset allocation within green investing. And watch out for more as we continue with the Smug take on reducing green volatility.

For those of you looking for more personalized help, please feel free to email or call us. The advice is free, and I welcome the conversation. So be green and invest Smug!

Quck Links

Check these out, some interesting tidbits:

Ode Magazine details some Green 401(k) info.

The Motley Fool notes that over 10% of all investable assets were invested using socially responsible criteria.

Interest in green investing spurred a 58% increase in green venture capital money in the 2Q.

More to come!