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Portfolio > Mutual Funds

Helping Boomers Build A (Green) Nest Egg

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The next time a boomer client asks you about how best to allocate the mutual fund portfolio of a variable insurance or variable annuity product, think green. So urge the co-authors of a new book, “The Top 10 Investments for the Next 10 Years,” which propounds that environmentally friendly investing will increasingly yield big payoffs as the planet’s resources grow scarce and as the need for alternative energy sources becomes more pressing.

“The hottest investments today are those that offer environmentally sustainable development,” says Al Chalabi, a co-author of the book and a Hong Kong-based consultant to companies that seek to establish and expand operations in Asia. “As governments expand their search for alternative energy sources to reduce greenhouse gases, a lot of money will be directed to this area. And green investments share the most promise.”

That growth potential is not lost on boomers and other environmentally attuned investors who are angling to cash in on green technologies–and add extra cushion to their retirement nest eggs. A March 2008 study published by the Washington, D.C.-based Social Investment Forum found that that socially responsible investing in the U.S. grew at a “much faster pace” than all other assets under management. And a chief reason is the rising demand for climate-related renewable energy alternatives.

The “Report on Socially Responsible Investing Trends in the United States” discloses that from 2005 to 2007, SRI assets increased more than 18% while all investment assets under management edged up by less than 3%. Assets in all socially and environmentally screened funds, including mutual funds and exchange-traded funds (ETFs), rose to $201.8 billion in 260 funds in 2007, a 13% increase over the $179 billion in the 201 funds tracked in 2005. Eight socially and environmentally screened ETFs with $2.25 billion in total net assets were available through the end of 2006–the first time that SRI-focused ETFs have been a factor in SIF’s “Trends” report.

Life insurance professionals aiming to avail clients of green investments should find opportunities aplenty. The largest share of socially and environmentally screened funds are mutual funds, with $171.7 billion in total net assets invested in 173 funds available in 358 share classes. Of the screened funds, 19 with $12.5 billion underlay variable annuity products, according to the report. Firms offering these funds include Calvert Group, First Affirmative Financial Network, The Spectera Funds and TIAA-CREF.

Among the traditional renewable energy solutions–hydro (tidal and wave power), wind power, conservation and solar–Chalabi and co-author Jim Mellon view the last as the most promising. They’re particularly bullish on companies specializing in photovoltaics: solid-state devices and films that convert the sun’s rays into electricity. The “really exciting” technologies being developed, says Chalabi, are thin film photovoltaic (PV) cells that use compound semiconductors, most notably copper indium gallium diselenide or CIGs.

“The technology is advancing to the point where it’s becoming economically viable,” says Chalabi. “It’s not unrealistic to believe that within 5 years, the blinds and shutters in people’s homes will use solar panels based on this technology. Every opportunity to capture the sun’s rays will be seized.”

Chalabi acknowledges that, near-term, the pace at which solar technology and other energy renewables are adopted will depend in some measure on government-financed inducements. Germany, he notes, is the world leader in solar power because its federal government subsidizes this form of energy. Also helping to spur investment in alternative energy sources is the creation of systems for trading carbon credits, such as the European Union’s Exchange Trading Market or ETS.

For boomers who are disinclined to bet on particular companies, say Chalabi, one option for mitigating risk is to purchase shares of companies that mine or process raw materials used to power green technologies. A second is to buy mutual or exchange-traded funds that invest in varied alternative energies sources. Example: the Market Vendors Global Alternative Energy ETF, which in the U.S. trades under the ticker symbol GEX.

Chalabi also advocates limiting investment in environmentally screened funds to generally 15% of the client’s portfolio, though the precise share will vary with the individual’s risk-tolerance, age, financial situation and retirement goals.

“It would be imprudent to invest entirely in green technologies,” says Chalabi. “Boomers may or may not find gold metaphorically, but by investing sensibly and by diversifying across market opportunities, they can find their money fountains–investments that will pump out long-term profits and sustain their financial futures.”

“It’s difficult to back the right horse at this stage,” he adds. “That is why investing in a diversified portfolio, such as an ETF, is wise. Even if some companies don’t come out as winners, chances are that green-savvy investors will be part of the ones that do.”


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