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'Green' mutual funds bounce back after Trump-induced retreat

Stock MarketsMay 31, 2017 01:27AM ET
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© Reuters. FILE PHOTO - An array of solar panels in Oakland California

By Ross Kerber

BOSTON (Reuters) - After U.S. President Donald Trump's election last November, investors pulled nearly $68 million from so-called "green" mutual funds, reflecting fear that his pro-coal agenda would hurt renewable energy firms.

But now investors are pouring money back in, boosting net deposits in 22 green funds to nearly $83 million in the first four months of 2017, according to data from Thomson Reuters' Lipper unit.

Investors' renewed faith in the funds reflects a growing belief the president will not succeed in reviving the coal industry and will not target the government subsidies that underpin renewable power, which have bipartisan support.

(For a graphic on "green" funds drawing new investor cash click http://tmsnrt.rs/2rir2pw)

It also sends a positive sign for the wind, solar and energy efficiency firms and make up a large portion of the green-fund portfolios.

The coal industry faces problems in the marketplace that are too big for any government to solve, said Murray Rosenblith, a portfolio manager for the $209 million New Alternatives Fund, among the U.S. green funds seeing investor inflows.

"Trump can't bring back coal," he said. "There's nothing that can bring it back."

A Reuters survey of some 32 utilities in Republican states last month showed that none plan to increase coal use as a result of Trump’s policies. Many planned to continue a shift to cheaper and cleaner alternatives, including wind and solar.

A White House official did not respond to a request for comment about the administration’s efforts to boost coal or its position on wind and solar subsidies.

Lipper classifies "green" funds as those with screening or investment strategies that are based solely on environmental criteria. Many make it a point to avoid purchasing shares of traditional oil, gas or mining companies.

For a graphic showing the turnaround in green-fund investments, see: http://tmsnrt.rs/2qPISl4

The funds, while still an investment niche, have become increasingly popular over the past decade amid rising worries about climate change. They tend to draw younger and more environmentally minded investors who see profits in the burgeoning renewable power industry.

"Solar and wind power are creating a lot of jobs. There is a long-term secular trend taking place," said Joe Keefe, Chief Executive of Pax World Management LLC, whose $418 million Pax Global Environmental Markets fund is one of the biggest in the green fund sector.

Solar firms employed about 374,000 workers in 2016, while the wind industry employed 101,738. Combined, they produced job growth of about 25 percent over 2015, according to the U.S. Department of Energy.

The average fund among the group of 22 green funds tracked by Lipper posted a six-month return of 9.37 percent. That lagged the S&P 500 index’s 12.14 percent, excluding dividends, over the same period through April 30, but beat the S&P's oil and gas index, along with several major coal companies which have slumped since the election.

The growth helped boost the group’s combined assets under management to $2.4 billion by the end of April, up from $2.1 billion in November, according to the data.

Tom Roseen, Lipper's head of research, said the inflows into green funds could reflect value-shopping after the election triggered an initial sell-off in the solar and wind energy sectors.

He cited solar module maker First Solar Inc (NASDAQ:FSLR), a popular stock among green funds, trading at about $39.50 a share, far off the highs above $70 it reached last year but up more than 35 percent from a drop it suffered after the election.

TRUMP SKEPTICS

Trump campaigned on a promise to revive the ailing oil and coal industries, in part by dismantling former President Barack Obama’s environmental regulations aimed at cutting carbon dioxide emissions.

He also vowed to pull the United States out of a global pact to fight climate change, a promise White House officials said Trump is now reconsidering, under pressure from lawmakers, global allies, and scores of major oil, coal and other companies.

Trump’s more conservative supporters - including the man who led his transition at the Environmental Protection Agency, Myron Ebell - have complained about the slow pace of progress in dismantling Obama-era climate initiatives.

While many drilling and mining companies have applauded Trump’s efforts, some investors are skeptical that repealing climate regulation will provide a big boost to fossil fuels.

The government subsidies that are crucial for growth of wind and solar power, meanwhile, seem to enjoy bipartisan support in Congress.

Existing tax credits for solar and wind projects were extended for five years at the end of 2015 by a Republican-controlled Congress. A number of Republican lawmakers represent states with burgeoning wind and solar industries, such as Texas and North Dakota.

Trump administration policy has yet to affect renewable energy firms - and may not affect them much going forward, said Mike Garland, Chief Executive of wind farm owner Pattern Energy Group Inc..

“Most investors are starting to realize that the federal government is limited in its impact and the risk to (green energy subsidies) is relatively low," he said.

Pattern’s stock has gained 20 percent since the beginning of the year, after falling 10 percent between the November election and the end of 2016.

Many of the green funds tracked by Lipper are heavily invested in renewable energy companies with overseas operations that reduce their exposure to U.S. politics.

One of the top holdings of Rosenblith’s fund, for example, is Vestas Wind Systems, the Danish company that produces and services wind turbines. If U.S. policies turned against wind power, Vestas could still expect strong demand elsewhere, Rosenblith said.

A number of exchange-traded funds focused on renewable energy also attracted money this year, led by Guggenheim Investments' Solar ETF, which took in $28.5 million.

Its top holdings include Arizona-based First Solar and China’s Xinyi Solar Holdings.

William Belden, Guggenheim's head of ETF business development, said the inflows suggest that "some of the early responses to the Trump administration were overdone."

'Green' mutual funds bounce back after Trump-induced retreat
 

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