Green Mutual Funds - Interview with David J. Schoenwald of the New Alternatives Fund

The New Alternatives Fund, dating back to 1982, is today one of the largest green mutual funds in the US. It takes a positive investment approach, investing in companies involved in environmentally beneficial activities.

In particular, it strives to select companies involved in alternative energy, recycling, clean air and water, pollution prevention and conservation.

With stock market turmoil continuing, Fund Co-Founder and President David J. Schoenwald agreed to an online interview.

How do you see the short-term outlook for alternative energy companies as global economic growth slows?

I am concerned that the credit squeeze will negatively impact the development of wind and solar projects. I am also concerned that the economic downturn will have a continued negative impact on efforts to conserve in buildings.

Is the long-term outlook for the sector as rosy as before?

No, I would not characterize it as 'rosy'.

Your top 10 holdings (as of September 2008) are from six different countries (US, Canada, France, Spain, Denmark and Portugal) and your total portfolio has stocks from 16 countries. How do you stay on top of global developments in renewable energy?

I subscribe to a number of publications which follow the various industries in the sector, and review the filings of the companies we follow and news about each.

How important is it for investors to look outside the US?

Many of the companies involved in the US market are foreign companies. For example, the largest operators of wind facilities and some of the largest turbine manufacturers are foreign.

But realistically, how easy is it for investors to keep up with overseas trends?

Google News reports on the various companies and developments in project finance are available on the internet. Some of the reports require subscriptions to various publications.

You have made some big investments during 2008, and your top three holdings (at September 2008) are EDF Energies Nouvelles (EDFEF.PK), American Water Works (AWK) and South Jersey Industries (SJI). Only the first of these was among your top 10 stocks in December 2007, and American Water Works was not in the portfolio at all. What are the particular attractions of these stocks?

We increased out EDF Energies Nouvelles investment by way of a discounted offering to existing shareholders.

American Water Works is attractive for its geographic diversity in the US, its size and access to capital, its generous dividend and its management (management was affiliated with other companies we owned in the past - we owned shares of American Water Works before it was taken over by RWE a number of years ago).

South Jersey is attractive both for the stability provided by a regulated utility (a reasonable dividend and low payout ratio) and for its additional activities involving combined heat and power (the Marina division) and landfill gas interests.

Solar power and wind energy have been particularly strong stock market performers over recent years. Do you expect this to continue, or might other sectors take over the running?

I think the solar photo-voltaic business is too crowded and competitive. I suspect companies which make use of low-wage labor in developing countries will gain market share. We are concerned from the perspective of social responsibility about the use of low-wage labor and the lack of sufficient disclosure by the companies in China.

Can you highlight one or two stocks in your portfolio that you think could surprise with their strong performance?

I do not really have favorites. However, I am concerned about the currency impact on various companies, both the currency impact related to the translation of stock values from Euros to US dollars, and the financial impact of currencies on operations of foreign companies outside their own country.

Thank you very much.

Disclosure: No positions

October 24th, 2008

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