FINANCE:As eco funds move in to the mainstream, more investors are seeing opportunities in water, alternative energy and commoditites

High-profile environmental campaigns, like those by former US vice-president Al Gore, have brought climate change as an issue into the mainstream. The growing awareness of environmental issues has led to a massive surge in interest in green and natural resources investments.

Fund managers have recognised the growing interest in these issues and have responded by setting up investment products such as water, environmental and natural resources funds that offer investors, who are concerned about climate change, an opportunity to put their money where their mouth is. Eco funds are no longer regarded as niche investments.

"Everyone realises that it's on the agenda and it is not just for tree huggers and hippies. It has become much more mainstream," said Jean Ryan, investment specialist for eco funds at KBC Asset Management. The Dublin firm has been managing alternative energy investment funds since 2000. Given that it has been pushing these environmental-related funds for so long, it has enjoyed a substantial pick-up in its business in recent years because of its lengthy track record.

The company has three "eco funds" - the Alternative Energy Fund and Water Fund, both of which were established in 2000, and the Climate Change Fund, which was set up in February 2007. For investors who prefer to spread their money across a variety of investment funds,there is the Innovator Fund, launched in October 2006, which covers a more diversified range of products - alternative energy, water, commodities and emerging markets.

"The funds would have been more for retail investors, the large high-net worth private clients, but they have become much more common with institutional investors," says Ryan. The assets under management in the three eco funds have more than trebled in recent years to €1.9 billion. The Alternative Energy Fund delivered a 42 per cent return in the year to the end of November and a return of 23.8 per cent in the five years to that date.

The largest fund, the Water Fund has almost €1.2 billion under management, and has brought investors a return of 17.1 per cent over the last five years. The Climate Change Fund, not yet a year old and with €142 million under management, brought a return of just over 7 per cent in the first 11 months of last year.

KBC's Climate Change Fund is only open to institutional investors, but will be available to retail customers early next year. The Alternative Energy and Water Funds are available through New Ireland and Bank of Ireland. The minimum investment is €5,000.

Fund managers recognise that higher oil prices this year and greater demands for energy are putting a strain on traditional energy resources and pushing the value of alternative energy stocks. They see not just an interest by investors in alternative energy sources, including wind, solar and bio-based energy, but the profit to be made in these areas over the coming years.

Ryan says that one area where KBC sees potential for return is the solar industry. She cites Solarbuzz, an industry association, which expects the sector to grow by 20 per cent to 2010.

KBC's Alternative Energy Fund has invested in the US-listed company Suntech Power whose share price rose by a third between November 1st and the middle of December. Ryan says the fund has also invested in another US firm, First Solar, which manufactures modules for solar panels. Its stock was up 56 per cent between November 1st and mid-December.

Like KBC, investment manager Elliott Griffin, managing director of BVP Investments, has spotted the potential profit in green investment. Griffin's firm, which trades as Simple.ie, has just launched a Green BES Investment Fund.

He hopes to raise €3 million from investors which will then be used to invest in four or five companies that are "providing leading-edge environmental solutions". Investors can put up between €10,000 and €150,000 in the fund.

"There is a huge appetite for investing in renewable energy projects and also in ethical investments as well," says Griffin.

"It is an investment opportunity of the future and . . . we think there is proof that this area is pretty solid, based on the companies such as Airtricity."

Massive investments are being made in alternative energy. In November Europe's biggest power company RWE, with more than 30 million electricity and gas customers, said it would invest €1 billion in renewable energy sources. Wind power has grown by 28 per cent a year over the past five years and looks set to continue it meteoric growth rate.

"People have become much more comfortable with the alternative energy and environmental sector," says Griffin.

"For example, the recycling companies are well established at this stage. They are acquiring other companies and building businesses."

He says investors are opportunities to put money in working alternative energy and environmental businesses, not just in ideas.

"There is comfort with investors because there are tangible assets in the companies and not just intellectual property."

He says the BES Fund, which was launched last month and closes at the end of March, was considering an investment in a Co Clare company, FMC Tech, which is involved in electricity distribution, and another company involved in wave power. Some €12 million was allocated in the December budget to fund research and development in renewable energy and, of that, €7 million will be spent on research on ocean energy.

Jean Ryan of KBC says some investors want to ensure they are making social responsible investments (SRI) and to this end her firm carries out "SRI screening" on all the stocks in its eco funds to ensure the money is invested in the right stocks.

Other investment managers have targeted alternative energy investors.

Dolmen Stockbrokers' Green Effects Fund brought investors a return of 20.5 per cent in the year to September 30th, 2007, and 15.1 per cent over the previous five years.

The fund, launched in October 2000, invests in 30 ethically screen stocks from markets around the globe. It is open to investors with at least €5,000.

Investments are made in companies on the Natural Stock Index, an index of shares with strong ethical principles.

At the end of November, 14.1 per cent of the fund was in financial stocks, 12.1 per cent in water, 10.5 per cent in technology and 9.7 per cent in solar power.

Another green-tinged investment fund was recently set up to target the growing number of interested investors. Eagle Star launched its Earth Resources fund in October, which will put money into companies that will benefit from the demand for resources as the world's population continues to grow. The fund will invest in oil, alternative energy, precious metals and agriculture.

Jean Ryan says the recent negotiations in Bali on climate change, as well as increased energy costs for consumers, has made investors sit up and they have spotted opportunities to invest. Fund managers have spotted them as well and are devising innovative new funds."It has been pushed centre stage," says Ryan.

"A lot of investors want to access this theme and fund managers are responding. There is a push-pull thing going on."