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Measuring Green Investing Success


By Linda Brewton
The Motley Fool
July 9, 2008


Eco-friendly investors now have a tool to gauge the performance of their hip
new "green" investing strategies. Earlier this month, Renaissance Capital, LLC
launched its Green IPO Index, comprised of public companies focusing on
environmental issues such as alternative energy, recycling, conservation, clean
transport, energy efficiency, and green enabling technologies.

Renaissance created the index in response to the growing demand for
environmentally friendly investments. In addition to the social aspects of green
investing, Renaissance notes that newly public alternative energy companies have
typically enjoyed abnormally high returns. With its low correlation to the S&P
500 Index, the Green IPO Index also offers investors a means of diversifying
their portfolios.

To construct the index, Renaissance screens companies for minimum size and
liquidity thresholds, and weights each holding based on its float-adjusted
market capitalization. The index is rebalanced quarterly, and constituents are
removed on the second anniversary of their IPOs.

Currently, more than half of the 24 companies in the index are solar companies,
including First Solar (Nasdaq: FSLR), JA Solar Holdings (Nasdaq: JASO) and LDK
Solar (NYSE: LDK). Other companies include Nymex (NYSE: NMX), a commodity
futures exchange specializing in energy and precious metals; Rubicon Technology
(Nasdaq: RBCN), which produces components for LED and other optical
applications; and American Water Works (NYSE: AWK), a water and wastewater
service provider.

Given its industry concentration, and the size and age of its constituents, the
Green IPO Index is more volatile on a short-term basis than other indices. In
the first half of 2008, it lost 30.1%, while the S&P 500 and Russell 2000 gave
up 12.8% and 10.9%, respectively. However, its three-year return of 42.7% far
outpaced the 6.6% return of the S&P 500, and the 5.5% of the Russell 2000. It
also beat Renaissance's diversified IPO index, which returned 18.5%, thus
proving that being green and making greenbacks aren't always mutually exclusive.


 

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