RECESSION MAY STYMIE GREEN INVESTING

Although political sentiment is warming to environmentally sensitive policies, the green movement may not be ready for a boom in investing in 2009. Some observers question the viability of green industries, and financial advisers are waiting to see how the recession and politics affect the green economy. "Some folks are trying to make connections between [President-elect Barack] Obama's campaigning on issues of alternative energy and infrastructure, but I'd discourage investors from banking on the idea that his support thus far translates into stronger investment opportunities at this point," said Michael Herbst, fund analyst at Chicago-based Morningstar Inc. "That may change down the line." The market downturn has also dampened expectations for new funds. "I don't think there will be very many new funds launched in the first half of 2009," said Steve Schueth, president of First Affirmative Financial Network LLC of Boulder, Colo. The firm, which focuses on socially conscious investing, is a network of 134 advisers and has $535 million in assets under management. "People are hunkered down right now," Mr. Schueth said. "If the markets change and the confidence returns, that might change later in the year." Green funds have also been hit as hard as other funds in the market, Mr. Herbst said. "That volatility, in addition to the widespread redemptions we've seen from mutual funds in general, makes it tough to predict if we're likely [to see] continued asset growth or new fund launches for green funds in the near future," he said. Green funds include investments that have a positive environmental impact and companies engaged in environmentally sustainable business practices, according to New York-based research firm Lipper Inc. In a study released in November, which looked at growth from 2001, Lipper found that assets in green funds grew 640% to $1.1 billion as of Oct. 31, from $153 million.

GAINING MORE ASSETS

"Green funds are the newest of the [socially conscious investing] sectors, so it's understandable that they would be gaining assets faster," said Jon Kreider, author of the report and a fiduciary research analyst at Lipper. "I'm hesitant to say the growth is necessarily because they are green." Launches will continue as long as the demand is there, Mr. Kreider said. If momentum grows, asset managers expect themes such as alternative energy and recycling to dominate. "After we put the financial crisis behind us, you'll see 2009 or 2010 as a transformational year for sustainable investing," said Joe Keefe, president of Pax World Management Corp. in Portsmouth, N.H., a socially conscious fund company. The likelihood that the government will introduce incentives through tax policy and subsidies is strong, he said. "President-elect Obama has already stated that he is going to take proactive steps to catalyze the green economy," Mr. Keefe said. "Companies will be competing for opportunities; new markets will be created," he said. "That's going to be good for investors." The economy will also play a role, said Andrew Brengle, senior analyst at KLD Research & Analytics Inc., a Boston-based environmental-research firm. "If we can get past the current hardship, the future is bright for green investing," he said. Alternative energy will be a major theme, Mr. Brengle said. "The green [climate change] solutions area is still very attractive in terms of investing because there will be some growth in most of the categories," said Jack Robinson, president and chief investment officer of Winslow Management Co. LLC, a Boston-based green-investing firm. But advisers remain skeptical. "I think we'll see more green funds out there, but it's not certain that they will necessarily do well," said Steve Gorman, president of Gorman Financial Management of Hingham, Mass., which has $110 million in assets under management. "A lot of these businesses are emerging businesses; many do not make it," he said. "I consider green- technology investment as a high-risk and volatile category." E-mail Sue Asci at sasci@investmentnews.com.