| Green Investing For A Solid Return|
By Jackson Robinson
March 3, 2008
The Prius-driving, granola-eating crowd has figured out what Jackson
Robinson has known for a long time: Green investing can earn you a
respectable eco-image while it also produces solid returns.
In 1983, Robinson started Winslow Management with the purpose of offering
an environmentally conscious portfolio to investors. Today, the veteran
money man is lead manager of the Winslow Green Growth Fund (WGGFX), which
targets green market sectors like renewable energy, natural and organic
products, and recycling, as well as what it considers environmentally
That Mother Earth-friendly approach hasn't hurt the fund's long-term
results. As of Feb. 25, over the last three years the fund, which has
about $378 million in total assets, has generated a 9.91% annualized total
return, far ahead of the 5.14% return of its benchmark, the Russell 2000
Growth Index. Over the last five years, the fund has generated a 22.95%
annualized total return, nearly eight percentage points better than its
Forbes.com recently checked in Robinson, 65, to talk about his fund's
performance, his top picks and why he practices what he preaches when it
comes to living the green life.
Forbes.com: How did you first get interested in green investing?
Robinson: From 1979 to 1983, I was working with a company in Vermont
called Garden Way, which sold everything you needed to be a gardener and
to be self-sufficient. I worked as the CFO. I learned that you could be
socially and environmentally responsible, and it didn't have to impact the
bottom line. The largest product line we had was a garden tiller. We took
used tillers and re-manufactured them. One lesson learned: It doesn't have
to be new to be profitable. You can reuse pieces of equipment and resell
them at margins that are attractive.
As a money manager, what did you take away from that experience?
I wanted to integrate environmental thinking into the investment process.
For the first seven years, it meant screening things out, screening out
weapons and tobacco, any company that had a product that was detrimental
to people's health. Then I made the decision in the early 1990s to focus
Winslow just on green investing. Companies were going public that had a
real green product or service. There weren't many of them, but we switched
from screening out to screening in.
We broke the universe into three categories: the "dirties" we avoided, and
the "greens" we wanted to own. And then we filled out the portfolio with
"cleans," meaning they weren't part of the solution but they weren't part
of the problem either.
Does green investing still make sense in today's choppy, uncertain market?
Absolutely, and here is why: Let's face it, we are in a no-growth
environment. But the fact of the matter is that when you identify green
investment areas, clean energy and healthy living, these are all still
growing. Their growth may be less, but if you are in the water filtration
business, as an example, or solar, wind or energy efficiency businesses,
you are growing. If you are selling organic foods and promoting healthy
living, you are in a growth area. For every green problem, there is a
solution, and they are growing.
What differentiates green stocks?
They are in green businesses, so they don't create toxic waste. They don't
have environmental liabilities. They can reduce costs because they think
about recycling water, for instance, instead of using clean water. Lastly,
if you create a green product or service, you can grow your top line.
Because demand for green solutions, whether it's water or organic foods,
are all growth areas. So, high revenues, lower costs and eliminating
liability, that's a wonderful recipe for enhanced profitability.
You talk about environmental mega-trends that will continue to drive
growth in green markets, long term. By those trends, do you mean expensive
oil, climate change and energy security?
It's more than that. Sure, climate change is a key driver, as is energy
security. The other mega-trends that we're also interested in are
commodities. These are finite resources, and demand is so large. There is
only so much to go around.
So we will see a lot more recycling of metals. Right now, 99% of steel is
recycled. We will see similar trends in all other commodities, whether
it's plastic, aluminum or glass. So that's a whole category. The other one
is health, the increased interest in healthy living, whether it's eating
natural foods or lifestyles that include more fitness.
How does that mandate restrict your investment decisions? Does it mean,
for instance, that you won't invest in nuclear power companies?
Well, nuclear power is an interesting conversation. There is no carbon
release, which is good. But there are two bad parts: the cost of building
a plant isn't competitive with wind. And soon it won't be competitive with
solar. Also, it would take 10 years to build a nuclear plant. So nukes
should be avoided. We don't have 10 years to solve the problem. There are
other green technologies that are competitive.
But are consumers really going to shell out more money right now for
organic and natural foods? They're already under a lot of pressure.
Go back 150 years. The average family spent 70% of their income on food
and shelter. Today, that is under 20%. People will make healthier choices.
If you are eating out twice per week, maybe you might reduce that by one
time in order to eat healthier, better food. People will eat more locally
grown food because they know what's in it. It is more expensive. But it's
better for you and healthier.
You've written about how a company's environmental performance reflects
how the company is managed. Elaborate on that for us.
Corporate culture is important to understand, and corporate values, those
are the footing of any company. If there is no premium placed on
sustainability, then you need to be careful. If the company doesn't care
about the environment, then it probably doesn't care too much about its
employees or community, or other stakeholders.
In the 1990s, I interviewed Ken Lay. He was promoting his company [Enron],
and he mentioned that they were environmentally responsible. Well, I asked
him about that. I quickly found that it was all puffery. So we avoided
that investment. We had no clue that they were cooking the books. If they
aren't honest about one aspect of the business, then it's a big red flag
about the rest of the business.
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You're specifically targeting small-growth companies, typically less than
$2 billion in market capitalization. Of course, there is more risk when
investing in domestic small- and medium-cap companies.
Yes, it's the most volatile. No question. But it's also where the biggest
winners are. There is more volatility, but we found over the long haul
it's also where we can add value. And so far, so good. And we opened up a
new fund that is a mid-cap called Winslow Green Solutions [WGSLX]. That
will have less volatility.
Let's talk about some of the risks involved in investing in green funds.
There are analysts who point out that these green industries are young.
They note that governmental regulation or subsidies can change quickly and
make or break a one-product firm's prospects. Your response?
Just because you're green doesn't make you a good investment. We do avoid
companies that are regulatory driven over the long haul. Lots of new
technologies are subsidized one way or the other.
What will happen in the green space is that we are going to see more
regulation. It will drive the price of carbon-based products higher. It
will make green solutions more attractive. Count on that happening. It
hasn't worked, just asking people to do it the right way. So it's going to
be mandated and regulated.
Let's talk about some stocks. A big holding for you is Green Mountain
Coffee Roasters. They put up some solid first-quarter numbers: Net income
jumped 20% to $2.9 million, revenues rose 52% to $126.4 million, and they
increased guidance for fiscal 2008. What are they doing right?
This company is on fire. It started in Vermont. The CEO is very socially
responsible. That was appealing to the Vermont community. What is going on
here is that they made that investment in Keurig. [Keurig is a company
that markets single-cup coffee brewing systems.] So they bought this
company. These machines, they can't make them fast enough.
Why does this company pass your green test?
The company is carbon neutral. They buy carbon credits. They also have
integrated energy efficiencies into their manufacturing operations. They
donate 5% of pretax profits to nonprofits. They are the largest
second-largest seller of organic coffee in this country. They walk the
talk. And they are growing faster than any coffee company in the world.
Any worries for you about higher raw material costs here?
Always, but coffee is an addiction for a lot of Americas. So will they
give up coffee? No way. Will they pay an extra nickel? Sure.
The stock has soared more than 60% in the past year. Should investors be
nervous about jumping in right now?
The company can keep growing at 40% for the next two or three years. Their
penetration in the U.S. market is minuscule. Those Keurig machines will be
everywhere. I think they are just at the beginning of the runway. The
stock isn't cheap, but will it keep growing? Absolutely.
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Another name on your list is First Solar. The company recently reported
that fourth-quarter earnings jumped 686.3% to $62.9 million, and there was
a near-quadrupling of sales to $200.8 million. Did that report surprise you?
Yes, because they have always understated what they're doing. But they
keep beating, and I believe that if you have grid parity--pricing solar
residential and commercial products at a level that is competitive with
what you can buy off your local utility--that is just huge. It is a
Analysts do bring up some concerns. They argue that the solar industry
relies on big subsidies for 50% of total installed-system costs. So a
pullback in subsidies, they say, could have an effect on current demand.
There is uncertainty about subsidies and tax credits. But states and
cities are part of the subsidy for green power. That is not pulling back.
That is getting bigger. As for the federal government, you can count on
solar getting support, if it's a Democrat for president. The oil companies
don't like it. But tough. They have to get on the bandwagon.
Why do you favor First Solar over other solar stocks like Suntech Power
Holdings, LDK Solar and SunPower? What does this company have that the
One, they have developed a disruptive technology. They do not use silicon.
That is in short supply, and the price is high. Two, they have tremendous
manufacturing expertise. They know how to reduce the costs of
manufacturing their product. In solar, it's all about getting the costs
down. They are excellent at that. Three, there is a management team here
that is focused. They are not rookies. That's important, because we are
talking about an emerging industry.
What happens if the price of oil does come down as the U.S. economy slows?
How does that affect interest in these alternative energy plays?
It depends on how much it comes down and for how long. If the price of oil
goes back under $50, then it impedes on these industries. But the global
demand for oil is huge. The countries we're buying oil from, they are
using more and more. And they are exporting less. They are beginning to
consume more of their own oil. So that's happening.
The other problem is the carbon release creating the climate change.
That's with us. That is happening. There is no reason to debate that issue
in mind. We will have a carbon tax here. Count on that. It will happen.
Another stock I need to ask you about is Bankrate. Analysts expect this
company to grow 28.5% annualized over the next five years. Does that sound
reasonable to you?
Yes, it is low. I like a lot about them. They are the leader. They own the
space. If you want to refinance the mortgage on your house today, you will
check in on their site. People continue to need to refinance and move. The
average family moves once every five years. So this won't stop.
It also looks relatively cheap right now, with a price-to-earnings-growth
ratio of just 0.81.
Right, and the CEO is dynamic. He runs a tight ship.
How, though, is Bankrate a green stock, exactly?
The Internet is green. Rather than driving around to different banks and
asking about borrowing money, people just go online. That saves fuel and
paper. So just going through the Internet process is greener.
What are the potential positive catalysts moving this stock higher?
They just made a couple acquisitions, both accretive. Plus, they are
getting into the student loan area right now. That to me is a growth area.
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What is your sell strategy for this fund?
We set price targets. We love it when stocks hit those, because then we
scale back. Sometimes companies don't do what we expect them to do. If
there is a fundamental breakdown in the business model, we will sell.
Can you give us an example of a company you recently pulled out of? Or
trimmed back on?
We had a large position on SunPower and Suntech. But we are concerned with
the silicon supply to the industry. Those are both stocks that we have sold.
The fund's performance is strong over the long term. But I do have to ask
about 2002. That year, the fund lost 37.5%. What happened?
We had a big play in the renewable alternative energy space. That space
sold off significantly. The price of oil also sold off. We were too early
and had too big a position. We have a big position now. But there are more
ways to play it. This time it is different. We think it is the time to be
in renewables. There are some really wonderful choices.
We don't see the price of oil going down a lot now. I mean, listen to
Boone Pickens. Boone says maybe it goes down $15. That doesn't begin to
make a difference when we look at renewable energy as a viable
alternative. And Boone is now talking about wind. So there it is. The oil
pro is even on the bandwagon. This is the place to be.
How do you go green in your own life?
Robinson: Winslow is a carbon-neutral company. We buy carbon credits. I
walk to work. My wife and I garden and exercise. We buy natural and
organic foods. We use bamboo to fix up the apartment.
It grows fast, and we're not cutting down the rain forest by using it.
Is it comfortable to walk on?
Very, and it's soft. So we walk the talk here. Could we still do more?