Green Commodities for a Complete Green Portfolio

by: Matthew Moscardi posted on: July 03, 2008 | about stocks: CGW / DBA / DSI / EVX / EWL / EWO / EWZ / FAN / FIW / FUE / FXA / FXC / FXS / GEX / GRN / GRU / GWO / JJA / JJG / KLD / KWT / LRY / MOO / PBD / PBW / PHO / PIO / PUW / PZD / QCLN / TAN    
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For those of you that have been reading the Smug Investments blog, Smugly Green, you will be familiar with our total green portfolio concept. For non readers, the ever expanding universe of green, light green, and responsible ETFs are making it possible to start thinking out of the box when creating your green portfolio. In order to do it right and be properly diversified, the notion of green may have to be stretched, but it's well worth the effort to create a more fully sustainable investment portfolio that doesn't necessarily sacrifice performance.

The obvious start to any green portfolio is the green energy options, some of which I laid out in my Beginner's Guide to Green Investing on Seeking Alpha. However, green energy is just a piece of the overall puzzle, albeit it an important one. The best way to start expanding the notion of a total green portfolio is to redefine asset allocation categories - instead of Small Cap, Mid Cap, Large Cap, and Bonds, Smug Investments' allocation classes look like this:

Agriculture

Agriculture is used in green energy, biomass, and other green/sustainable uses. It also has just about zero correlation to the S&P 500 and other green investments, which lowers volatility and increases overall return.

Consider: DB Agriculture (DBA), ELEMENTS Grains (GRU), iPath DJ AIG Agricuture (JJA), iPath DJ AIG Grains (JJG), Market Vectors Agribusiness (MOO)

Bond

Bonds or bond funds that 1.) are in "green promoting", or 2.) use socially responsible screens are both key parts to lowering volatility through low correlation and creating income for those who need a more steady income stream.

Consider: CRA Qualified Investment Retail [CRATX], Domini Social Bond Fund [DSBFX], Pax World High Yield [PAXHX]

Diversity / Social Investments

Smug Investments considers equities or bonds that promote diversity at executive level positions or in their investment philosophies as "green thinking." These social investments are a great way to provide exposure to the overall market, as they tend to be highly correlated with the S&P.

Consider: iShares KLD Select Social Index (KLD), iShares Social Index (DSI), Parnassus Workplace Fund [PARWX], Pax World Women's Equity Fund [PXWEX]

Eco Reserve / Low Carbon

By using currency or index positions as screened using Smug Investments' biocapacity and low carbon screening techniques, it's easy to diversify globally into multiple market spaces, further lowering your overall risk. For more information on how Smug Investments does this, see this post on the blog.

Consider: iShares MSCI Switzerland Index (EWL), iShares MSCI Austria Index (EWO), iShares MSCI Brazil Index (EWZ), CurrencyShares Australian Dollar Trust (FXA), CurrencyShares Canadian Dollar Trust (FXC), CurrencyShares Swedish Krona Trust (FXS)

Energy / Technology

Assets whose primary, or in some cases, secondary product is devoted to green energies or technology are the obvious first choice for green investors, and a staple in any green portfolio. Despite some high correlations to each other, it even makes sense to hedge yourself in multiple energy fields now that individual ETFs are available.

Consider:

Wind - First Trust Global Wind (FAN)

Biofuel - ELEMENTS MLCX Biofuels (FUE)

Total Green - Market Vectors Alternative Energy (GEX), PowerShares Global Clean Energy (PBD), PowerShares WilderHill Clean Energy (PBW), PowerShares WilderHill Progressive Energy (PUW)

Technology - PowerShares Cleantech (PZD), First Trust NASDAQ Clean Edge (QCLN)

Carbon - iPath Global Carbon (GRN), ELEMENTS Global Warming (GWO)

Solar - Market Vectors Solar Energy (KWT), ELEMENTS Solar Energy (TAN)

Real Estate

While still a young industry, there are a few green or "green leaning" REIT and real estate management companies. Commercial real estate tends to provide excellent yields and has little relation to residential real estate, thus escaping the housing crisis.

Consider: Liberty Property Trust (LRY)

Waste / Recycling

Even though assets involved recycling of all types of waste, waste technologies, and other recycling initiatives tend to be highly correlated to the S&P, as well as have higher betas, they are a great long term addition to a green portfolio.

Consider: Market Vectors Environmental Services (EVX), Winslow Green Solutions Fund [WGSLX]

Water

Water has an moderately high correlation to the S&P, but still should be considered a green commodity. The focus is on assets whose primary business is the production, conservation, and recycling of water.

Consider: Claymore S&P Global Water (CGW), First Trust ISE Water Index (FIW), PowerShares Water Resources (PHO), PowerShares Global Water Portfolio (PIO)

Diversification is key for any portfolio, even more so if you want to be a more "pure" green investors. Though pure green is still a theoretical concept, there's no reason not to start now, especially with the bevy of excellent ETF, ETN, and mutual fund options open to the retail investor and the DIYer.

Disclosure: Though I may own and use this asset in my portfolios, it may not be the correct fund for your individual situation, so these posts are by no means a recommendation that you purchase a particular asset or fund. Please read the prospectus in full before choosing to invest, and if necessary, consult a financial professional (understanding that your financial professionals also have conflicts of interest in many cases when making suggestions).

This article has 7 comments! Add yours below...

Matthew Moscardi

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This article has 7 comments:

  •  
    Zenfar
    Jul 03 11:02 AM
    My Website
    New wind ETF: PWND PowerShares Global Wind Energy

    Also I think Diversity / Social Investments is really in a different category than green. Perhaps you should start a couple of different categories such as Global Thinking and Progressive. Also what about Nukes?
  •  
    blink0404
    Jul 03 12:23 PM
    as the market continues to go down, agriculture, which used to be a safe haven, now looks like it may be subject to a downward trend. Here's a pretty good podcast that discusses what to during this down market and what's going on with coal, steel, bulk shipping, and agriculture.

    the main idea is that individual investors dont have to act like institutional investors and this market and may be better holding cash than trying to beat the market.
    www.greenfaucet.com/sh...
  •  
    Jgib
    Jul 04 11:54 AM
    I was surprised with your entry of EWZ in a green discussion. Biggest holding is Petrobras - a socialist company producing oil, and driller offshore - how green is that - offshore RIO. I think they have beaches.
  •  
    Matt
    Moscardi
    Jul 05 01:04 AM
    My Website
    Jgib, I agree - I talk about my criteria for holdings like EWZ on the blog. I use biocapacity and carbon metrics for macro holdings (like currency and index), but there is some soul swallowing that happens. It's inevitable in green investing. Even green holdings have questionable things. I definitely understand the underlying hypocrisy, but I do use a series of actual scientific studies to come up with the allocations. In my opinion, the overall idea is to promote green and not sacrifice returns, and a holding like EWZ fits that model.
  •  
    Stockaccumul
    ator
    Jul 05 03:07 PM
    Zacks published this (see below article) 7 trading days ago about Renesola (SOL), when the price was bouncing around at about $20.

    Zacks Rank in Industry 1 of 44... the best of all solars. Thats number one...

    See Zacks' site. This in addition to Investors Business Daily June ranking of SOL as the 4th best company (not just solars but the whole world, every company) to invest in... and in addition to Piper Jaffray's amazing careful on site research on SOL. Piper Jaffray article in June practically audited SOL, and its clean balance sheet, and they love it.

    Last week's drop was clearly a case of throwing the baby out with the bathwater to raise cash to feel good before the July 4th weekend... No news on SOL, just bullish: New rediculous cost of oil, and local and national governments worldwide jumping on the Solar bandwagon...

    Note that SOL actually sells to other solars, and has a unique method of production and supply, recycling for creation of its product... a unique process and company.

    I trust all three combined, Zacks, IBD, and Piper Jaffray.

    Read this quote from Zacks last week:

    "Through its history, ReneSola regularly adapted to changing market dynamics. The company is aggressively ramping up its polysilicon and solar wafer production capacities. Going forward, increased captive generation of polysilicon will improve its cost structure and enable wafer capacity expansions. Globally, rising solar wafer sales, along with escalating crude and long-term supply agreements, should collectively generate significant earnings growth. Buoyed by these positive factors and
    impressive results, SOL increased its 2008 production
    output and sales guidance. Accordingly, with a
    bullish outlook and an attractive relative valuation, we initiate coverage of SOL with a BUY recommendation and a six-month target price of $24.25, representing 27.2% upside potential."

    Note: today, at $13 SOL upside would be perhaps 40% ... Zacks published this above article 7 trading days ago when SOL price was much higher... other analysts have targets of $40, some at $55...

    Time to run to your laptop and buy SOL fast...
  •  
    Matt
    Moscardi
    Jul 05 06:08 PM
    My Website
    Haha! Thanks for the advertisement, Stockaccumulator. According to my short term trading models, I would be short SOL as of June 13th, and would be up 30%+ (though it's not one of my top 20 positions, and I didn't trade it).

    Keep the pump and dump kind of vibes on someone else's posts perhaps.
  •  
    buyitcheap
    Aug 01 11:44 AM
    Forthose interested in the solar storage problem that keeps solarfrom being truly viable...a solution may be at hand..
    www.sciencedaily.com/r...
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