Mass. Market: Going ‘green' can help boost your investments

You can drive a hybrid car, put solar panels on your roof or shop in the organic foods section of your grocery store.

But there are also ways to go ''green'' with your investments, thanks to a growing number of funds aimed at capitalizing on the current environmentalism trend.

Of the 21 environmentally-oriented funds tracked by Morningstar, a dozen of them have been created in the past two years. A couple are standard mutual funds, but most of the new funds are exchange-traded funds, which trade like stocks.

''We're definitely seeing more attention drift toward environmental issues,'' says Michael Herbst, a fund analyst with Morningstar in Chicago.

Of the mutual funds on the list, few are performing as well as the Winslow Green Growth fund, which is overseen by Winslow Management Co. in Boston. The fund has racked up impressive returns, exceeding an annual return of 22 percent during the past three-year and five year-periods, by focusing on small, environmentally friendly companies with major prospects for growth. For example, Winslow picked a winner by investing heavily in Vermont's Green Mountain Coffee Roasters, an organic coffee company that saw its stock soar from the $12-a-share range a year ago to nearly $40 a share now.

Winslow spokesman Ethan Berkwits attributes some of the fund's success to the rising interest in alternative energy at a time when oil prices can regularly exceed $70 a barrel. He says the costs associated with harnessing wind and solar power sources are finally close to being on par with traditional fossil fuels. He suspects that we'll soon reach what he calls the ''holy grail'' - the point at which ''it's just as expensive to buy clean energy as dirty energy.''

Herbst partly attributes the rising demand to the media's recent attention to ''clean energy'' alternatives and the impact that ''An Inconvenient Truth'' - Al Gore's widely-seen documentary on global warming - has had on the public.

Being a green investor does have some risks. While the Winslow fund easily outperformed its benchmark index, several other green funds turned in lackluster performances.

Herbst says you should be cautious when chasing green funds at a time of peak demand - or you could end up overpaying. Many green funds, including Winslow, focus on young firms whose stocks can be volatile. That's why Herbst says green funds shouldn't represent more than 5 to 10 percent of your total portfolio.

Lou Harvey, president of research firm Dalbar Inc. in Boston, says that green-fund investors may be trading a portion of their returns in exchange for appeasing their consciences. But he says the money that's going into these funds will likely accelerate important innovations, such as mass-produced fuel cells for cars.

Jeff Tjornehoj, an analyst with Lipper in Denver, says one challenge that managers of green funds face is finding ways to invest in the big, stable industrial players in the alternative energy sector without violating their core missions. For example, General Electric is one of the world's biggest wind turbine suppliers in the world. But how could managers at a fund like Winslow ignore the decades of pollution caused by GE in the Housatonic River and elsewhere? Tjornehoj says it's likely that managers of green funds could be stuck with niche players and startups, leaving their portfolios vulnerable to volatility.

Sure, investing in green funds can be tricky. But the Winslow Green Growth fund's managers have shown that helping the environment can also help your own investment portfolio.

Jon Chesto is the business editor of The Patriot Ledger in Quincy, Mass. He may be reached at jchesto@ledger.com.