Environmental funds - stick or sell?

aroominyork

Back in February I got caught up in a bit of fashion investing (ironically, just as I was ditching some active funds to be more index-focused). NinetyOne Global Environment had been on the up and up and got some column inches in the papers, so I got sucked in and figured I’d let the brave new green future make me some money. The next day after investing it began a fall of 11-12% and although it has recovered and is now showing a profit I am still a few % behind where I would have been if I had kept the money in my core index fund.

So where from here? Stick with it for the long term or sell and put the funds back in index? I am not sure I know the answer to the stock question of “would you invest today?”.

I am happy with the sectors the fund invests in and there should be money to be made if the right companies are chosen. If the right companies are chosen… The managers seem experienced enough. The woman talks sensibly on video although the bloke looks a bit startled, like he’s just seen a talking rabbit.

I think a danger is the false comfort that the inevitably greener future will, to some degree, protect the fund. But this could be a relatively volatile sector: somewhere I saw written that a 30% market fall might see these funds fall 40%.

I’d greatly appreciate people’s thoughts.

Aminatidi

aroominyork said:

So where from here? Stick with it for the long term or sell and put the funds back in index? I am not sure I know the answer to the stock question of “would you invest today?”.

I would take that as perhaps indicative of whether you should still hold it.

Just my own view but usually the stuff I hold that I don't like to invest in is stuff that has its place and it's usually (hopefully) downside protection.

I don't take the same view with racier stuff as there are plenty of alternatives.

El_Torro

I wouldn't let the fact that it hasn't performed that great between February and now put you off too much. You've been invested for a relatively short period of time. It may be an indication of what will happen in the future, or it might not be.

In your position I would put my faith in global trackers rather than an active eco fund. Who's to say if I'm right though?

Personally I don't agree with the view that environmentally friendly funds will perform better simply because governments want them to and subsidize their activities. There are plenty of subsidized activities out there which are not eco friendly, so I don't see this as a significant advantage for environmental funds. Eventually a company needs to stand on its own, regardless of how much money is thrown at it. 

aroominyork

El_Torro said:

I wouldn't let the fact that it hasn't performed that great between February and now put you off too much. You've been invested for a relatively short period of time. It may be an indication of what will happen in the future, or it might not be.

In your position I would put my faith in global trackers rather than an active eco fund. Who's to say if I'm right though?

Personally I don't agree with the view that environmentally friendly funds will perform better simply because governments want them to and subsidize their activities. There are plenty of subsidized activities out there which are not eco friendly, so I don't see this as a significant advantage for environmental funds. Eventually a company needs to stand on its own, regardless of how much money is thrown at it. 

It's not the performance that makes me question it - just the realisation that I let myself get caught up in fashion investing. Those 'this week's fund' type of articles presumably happen when an investment house's marketing department looks for coverage on the back of a period of sparkling performance and which, in the usual way of things, might be followed by a correction.

I don't see the sector growing on the basis of subsidies - isn't it a growth area whether you are looking at greener energy, more efficient recycling, electric cars etc? If subsidies are thrown at the sector as it scales up or to cover irrecoverable costs, fine, but I don't see that as driving profitability. However maybe there is a question of whether the sector's activities are inherently profitable?

Bobziz

It's a concentrated fund with 20% in China, so is likely to be volatile. What's your view of the top 10 companies held ? Are they fairly valued ? 

Subsidies can continue for a very long time, so I think you're right to focus on the growth potential, but sentiment will play a role. Perhaps see what comes out of COP26. It may be a useful time to reflect. 

aroominyork

Bobziz said:

What's your view of the top 10 companies held ? Are they fairly valued ?

Is that a rhetorical question? I have never tried to value individual companies and, in a growing sector like this, there is no way I would think I had access to the necessary information or, even if I did, would know how to interpret it competently.

Bobziz

aroominyork said:

Bobziz said:

What's your view of the top 10 companies held ? Are they fairly valued ?

Is that a rhetorical question? I have never tried to value individual companies and, in a growing sector like this, there is no way I would think I had access to the necessary information or, even if I did, would know how to interpret it competently.

No not really, although I appreciate that valuing growth companies is not easy. My view, for what its worth, is that the sector will grow significantly and rapidly, for all our sakes it needs to. However, given the share price growth since April last year, I wouldn't be surprised to see a significant drop in any market correction.

Over 10 years there should be plenty of sustained share price growth for the right companies i.e. those that supply and service the energy providers. Longer term, decent growth may be in innovation rather than earnings. As per traditional utility companies, operations will be heavily regulated and profits controlled.