Green Mutual Funds - Interview with Winslow Green

Winslow Management Company is one of the leading green investors in the US, with a history dating back to 1983. Its Winslow Green Growth Fund, founded in 2001, has become America's largest green fund.

In 2007 the company launched its Winslow Green Solutions Fund, which invests in domestic and overseas mid-sized growth companies involved in clean energy, natural products and recycling.

According to the corporate website:

"At its core, Winslow's investment approach focuses on finding companies that seek to take advantage of green market opportunities, or companies that build competitive advantage through clean and efficient business practices.

"We invest in green solutions sectors, such as renewable energy, natural products, recycling, water management, and others; we also invest in environmentally responsible companies across a variety of industries.

"Our strategy is to find hidden opportunities among the companies in these market niches - companies that appear poised for rapid growth, or companies whose stocks are unrecognized by the broader market."

A Winslow spokesperson discussed the funds and the sector in the light of recent market turmoil.

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

We are seeing current short-term weakness in many renewable energy stocks, relative to the overall market, for two main reasons – the fear that tight capital markets will adversely impact industry growth, and the reaction to recent declines in oil and natural gas prices. Our view on the underlying businesses, however, is positive - many established renewable energy companies are still generating strong results.

Additionally, the recent clean energy tax incentives passed into law have gotten very little attention from the investing public, but it is a major milestone for the industry, one that provides immediate support for the deployment of renewable energy technology in the United States.

Barack Obama – if elected president – had been expected to provide a big boost to the US alternative energy sector. But does it now seem likely he will be constrained by the economic downturn?

Features of his plan may be constrained, but if elected it seems almost certain that clean energy will be a centerpiece of his administration’s agenda. Many of the key elements of his plan are regulatory policies and do not involve direct government funding.

In terms of his plans that do involve government funding, we believe that many of these would also be important boosts to economic recovery – such as loans and grants to the automotive industry for building efficient cars and plug-in hybrids, or grants to subsidize much-needed investments in projects to modernize and improve the efficiency of the nation’s electricity grid.

Alternative energy stocks have been hit hard in the recent share market slump. Might they at some point enjoy a correspondingly sharp rebound? And is the long-term outlook for the sector as rosy as before?

A sharp rebound in renewable energy stocks would obviously be very welcome, but our focus is entirely on the long-term development and growth of the industry and the investment sector. Long-term, many states in the US and countries around the world are adopting or have adopted renewable portfolio standards rules that require significant increases in renewable energy production; the global community continues to coalesce into a stronger alliance to combat climate change and reduce carbon emissions.

Traditional sources of fuel are still historically expensive even after recent price declines. And technology in the renewable sector continues to improve at an impressive rate, particularly with the billions of dollars of funding that has been pouring into innovative new companies in the sector. We think that this sector represents the most exciting growth opportunities of the next decade and beyond, and that renewable energy is a likely candidate to help spur global economic recovery going forward.

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?

Solar and wind are certainly the most well-developed segments of the renewable energy space, and will likely continue as the central role players in the global growth of renewables. But other segments will also be important role players, and stock prices in those segments may not necessarily reflect the potential in those segments. Geothermal, for example – the US sits atop the second-largest geothermal energy reserves in the world, and there is tremendous growth potential available for companies that tap into that resource.

The top five holdings (as of September 2008) in your new Green Solutions Fund are from five different countries. How do you stay on top of global developments in renewable energy? How important is it for investors to look outside the US? But realistically, how easy is it for investors to keep up with overseas trends?

We are ardent believers in hardcore fundamental research. Our analysts have spent a good amount of time in Europe over the past year, meeting with companies and attending conferences, as the bulk of our international holdings are based in Europe.

A major ancillary benefit that has come from the growth in the industry is the greatly increased frequency of renewable energy conferences and management tours in the US, so we have the opportunity to meet and hear from many international management teams relatively frequently without leaving the States.

But it is certainly a challenge to keep up with emerging new technologies across many different regions of the globe. Investors are well-served by seeking international exposure, particularly in the renewable energy sector, but in most cases professionally managed funds are their best option – even investors with ample time and skill to research these markets will not have direct access to management teams and will not have the ability to tour and evaluate manufacturing facilities.

Can you highlight one or two stocks in your portfolios that you think could surprise with their strong performance? Are there any sectors you are particularly bullish about?

We feel strongly about the solar and wind sectors, particularly in light of recent price declines which, in our view, are unreasonable, and also in light of the significant boost that these segments received upon passage of a long-term, uncapped 30 per cent clean energy investment tax credit. We also feel that the geothermal space offers significant opportunity that the markets have not yet recognized.

Thank you.

October 28th, 2008

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