Not Quite Green Income

One of the basic things I learned in the non traded REIT (real estate) market is: it's all about the yield. Or at least it used to be before subprime. Now there's a question of credit and resale value. But, as a risk averse investor, I would rather take a stable 6% a year with virtually no volatility than a 10% return with moderate volatility. In my hedge fund, I spend all day watching volatility (or, at least, the model does), measuring vol, and scoring potential vol before investing. Most individuals don't have the tools, time, information, or understanding to measure vol at a constant basis, and that means it may be worth it to not take the risk. While green income doesn't yet exist (though, it's on it's way), there are responsible ways to invest in income vehicles - Pax World High Yield is one example

Ticker: PAXHX
Inception: October 8, 1999
Asset Type: Mutual Fund - Bond
Markets: Global
Smug Category: Bond
Included in Smug Asset Pool?: Yes
Returns:

YTD	1.67%
1 year	2.75%
3 year annualized	6.82%
5 year annualized	7.10%

Min Investment: $250
Min Retirement Investment: $250
Minimum Additional: $50 automatic investment, $250 otherwise
Sales Load:
$2,500 to $24,999.99: 0.00% of offering price
$25,000 to $99,999.99: 0.00% of offering price
$100,000 or more: 0.00% of offering price

Management Fees: 0.83% for 2007
12b-1 Fees: 0.25%
Other fees: 0.71%
Expense Waivers: -0.78%
Total Annual Fee: 1.01% for 2007

Pax, as a company, has several funds I like, including the Women's Equity Fund (formerly a separate entity, bought out last year by Pax) and the brand new-ish Global Green Fund. However, for income and stability, there aren't many funds like Pax High Yield with a commitment to socially responsible and sustainable investing. Interestingly, and I think calculatingly, Pax chooses to minimize it's emphasis on the socially responsible and sustainable message in their prospectus, but it's nonetheless a part of the company ethos. On the website are large sections devoted to community investing, responsible shareholder voting, and sustainable investing in general.

In terms of performance, PAXHX is currently yielding a hefty 6.8% and pays on a monthly basis. That's pretty attractive for the DIYer considering it's a no load fund (despite some high management fees). It's currently 25% or so globally allocated to defray some of the domestic risk, and is currently valued below it's year average as it (along with everything else) saw a dip last October. Pax as a company is definitely worth a look, and the High Yield Fund is a good place to start.

PAXHX is currently in my asset pool, and in the interests of disclosure, and I currently own shares personally. PLEASE READ THE PROSPECTUS BEFORE INVESTING. Though I may own and use this asset in my portfolios, it may not be the correct fund for your individual situation, so this post is by no means a recommendation that you purchase. Please read the prospectus in full before choosing to invest.

Changing Tack *

So I'm going to change the tact of this blog a bit and focus more on the asset pool. I'll still go over my start up process from time to time, but I think the more important information is how a retail investor can invest responsibly. I'll focus primarily on mutual funds and ETFs, since it is my belief that individual stocks is, for the most part, playing darts with money. Mutual funds and ETFs spread out the risk and take more "sector" type positions, and I am as risk averse as they come.

So, in that vein, my bread and butter "green" fund is one of the longest running green energy mutual funds in the country - the New Alternatives Fund (MUTF: NALFX). New Alternatives has a long track record, which many investors swear by. In my opinion, their true strength isn't their track record (which is excellent), but their innovation in investing green literally decades before anyone else thought to. Here's the rundown and the fine print:

Ticker: NALFX
Inception: September 3, 1982
Asset Type: Mutual Fund - Equities
Markets: Global
Smug Category: Total Green
Included in Smug Asset Pool?: Yes
Returns:

YTD	-5.06%
1 year	1.71%
3 year annualized	20.48%
5 year annualized	18.90%

Min Investment: $2,500
Min Retirement Investment: $2,000
Minimum Additional: $50 automatic investment, $250 otherwise
Sales Load:
$2,500 to $24,999.99: 4.75% of offering price
$25,000 to $99,999.99: 3.85% of offering price
$100,000 or more: 2.91% of offering price

Management Fees: 0.53% for 2007 - based on AUM.
12b-1 Fees: None
Other fees: 0.42%
Total Annual Fee: 0.95% for 2007.

All in all, the fine print is not too bad. However, like most small and mid cap mutual funds, New Alternatives will have some risk attached, as it tracks the market fairly closely. It has an over 20% standard deviation for it's 10 year track record, which is right in line with the S&P. When I spoke to them about their management strategies, it was clearly a mish mash of technical and "subjective factors" (which is code for "gut"). My big takeaway when doing my due diligence was this: if New Alternatives has historically more or less tracked the market, and they employed industry standard investment strategies, why would I need to invest irresponsibly to get results?

The argument against green and socially responsible investing has been that you give up profit since you limit your asset pool. If that were true, shouldn't a majority of global mid and small cap funds outperform New Alternatives and others like it? Then why isn't it true? Ultimately, when given the choice between a basic small or mid cap mutual fund that invests "irresponsibly" and a fund that invests with sustainable energy as its focus, if they both perform similarly, why not be responsible?

Such is not to say that all managers are created equal, but if the historical returns are the same, it can often come down to combination of investment style and intangibles (the "I like Joe in investor relations" argument).

As the elder states(wo)men of green energy investing, New Alternatives is definitely worth a look. Their asset pool is pretty specifically defined in the prospectus as investing in solar, wind, hydro, geothermal, biomass, fuel cells, hydrogen, and energy conservation/enabling technologies. That's a lot of tech in there, with some recycling thrown in, so expect some decent volatility. In my opinion, the little things can be as telling as the overall investment strategies. For instance, New Alternatives send out quarterly reports and paperwork on recycled and post consumer paper. The reports are typically one color simple text reports, minimizing the "flare" and substituting well thought out, substantive reports. It's a clear sign that, despite having over $300M under management, they haven't lost their grassroots appeal. It is definitely worth a look.

NALFX is currently in my asset pool, and in the interests of disclosure, and I currently own shares personally. PLEASE READ THE PROSPECTUS BEFORE INVESTING. Though I may own and use this asset in my portfolios, it may not be the correct fund for your individual situation, so this post is by no means a recommendation that you purchase. Please read the prospectus in full before choosing to invest.


* - Thanks Gregory for being sure I keep my ridiculous malapropisms to myself!