Going green without losing green
By James H. Lowell III • Bankrate.com

Some people think the sweet smell of success is mo' money. Others think it stinks, since it usually means you're investing in something that is ruining the ozone, contaminating groundwater, or drowning dolphins. We have yet to tackle the thorny theme of ethical funds. In sum, two work: namely, the Domini Social Equity fund (DSEFX) -- 29.58 percent over five years -- and the Green Century Balanced Fund (GCBLX), which did 76.39 percent last year and averaged 22.78 percent over the last five years.

So putting the cart before the horse, I want to focus on a niche fund that pumps its portfolio full of "green" stocks -- stocks of companies whose business it is to clean up the environment, or provide alternative energy sources. The niche pick here: New Alternatives (NALFX). But read New Alternatives as an allegory of funds to come. They may not be here yet, but the truth is that, in the wake of this fund's resurgent performance, others will follow.

Think solar. Think battery power. Think green electricity. You're well on your way to plugging into the types of stocks this fund holds. And if all that thinking has made you thirsty, then this fund's water purification stocks might just quench your thirst.

Of course, there's a downside. There always is. The downside to owning any "environmental services" fund is that they have rarely flooded investors with a torrent of profits. In fact, many do the opposite.

We took a look at the unloved, unwashed funds -- and whaddaya know? New Alternatives, managed by a guy who could be your great-grandfather, actually looks like a smart money move for the new millennium.

New Alternatives is actually the oldest "green" fund in fund town -- and it's among the best. Started in 1982 by Maurice Schoenwald and a handful of like-minded neighbors, New Alternatives has stuck to its moral guns while other contenders have gone the way of sinful profits.

Track record. Relative to its peers, this fund stands at the head of the class. But relative to the market, this fund has lagged a lot. (If your Dad had invested $10,000 in this fund rather than in your braces, you would have seen an average annual return of 11.1 percent vs. the market's average annual return of 19.2 percent for the same time period). The good news is that this fund has turned the corner and its profits are truly yet to come, since the companies it invests in are themselves in an industry on the verge of booming.

Take Enron (NYSE: ENE), one of the fund's top holdings. When we asked about the most promising area that currently has Schoenwald's eye, he replied fuel cells (Energy Research Corporation) which will help deliver electric cars to our doorsteps by the new millennium. That holding has helped drive this fund up over 20 percent year-to-date, against the backdrop of a negative 4 percent on the good ol' S&P 500.

It'll take more than one stock pick to propel this fund. If you want more juice, this fund's holdings in tree alternatives might satisfy your desire to invest on the edge. Minerals Tech (NYSE: MTX), which makes a powder filler for paper that reduces the amount of wood needed to produce paper, gets you there.

And at 79, Schoenwald's take on the world is direct -- no PR or PC filter. In fact, he answers the fund's phone himself. What you will find is a manager with a moral mandate. For example, he held off investing in US Filter (which focuses on water purification and has since been bought by Vivendi -- VVDIY) because eco-enemy Dan Quayle was a member of their board.

So take the fund or leave it on this note: Schoenwald is in the driver's seat, and the road he's taking has been the high road to green investing but the low road to profits. One major caveat: this fund has a 4.75 percent front-end load. We think that could change in the year or two ahead. While we wouldn't advocate putting more than 10 percent of your long-term money in this fund (for example, your 401(k) money), a small slice might net you not only big but good returns in the years ahead. But remember to keep an eye on one of Wall Street's few octogenarian managers.

-- Posted: Feb. 22, 2000