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The green crew are coming - but can sustainable funds finally deliver?
by Sarah Miloudi on Mar 07, 2013 at 10:27
Whether it's a drive to make do and mend, turning vegan or walking rather than taking the car or bus, 'going green' is in vogue.
But when it comes to sustainable investing, mutual funds have had a far tougher time. Investors are undoubtedly willing to back areas, such as new energy, but returns have been scarce to come by with the WilderHill New Energy Global Innovation Index ending February deeply in the red.
However, with the UK entering a legally binding contract with the EU to ensure 15% of its primary energy comes from a renewable source by 2020, green investments could finally be coming of age.
Where green funds once represented a noble idea, in practice returns often looked too meagre when the sector was in its infancy.
Returns from environmentally-focused closed-end funds give a fairly accurate representation of these struggles, with two out of four in negative territory over five years, but over one year, three out of four have edged into the black, including BlackRock New Energy, which last year caught the eye of arbitrageurs.
Greencoat UK Wind is probably among the first of the year's new offerings to take advantage of the government's pledge to bump up Britain's clean energy use, and if it gets off the ground its float could be one of the investment trust sector's biggest in 2013.
Managers Greencoat Capital are seeking to raise between £205 million and £260 million to invest in an initial seed portfolio of operational on and offshore wind farms in the UK. Hitting the top end of this target would mean the clean-tech specialists have attracted more at IPO than other favoured sectors such as loans, where ICG-Longbow, a real estate debt fund, pulled in £105 million, and TwentyFour Income, a European asset-backed securities fund, which attracted £150 million.
Greencoat has already tapped prime minister David Cameron's enthusiasm to cut Britain's carbon footprint by accepting a £50 million commitment to subscribe at its launch this month, with this accounting for around a quarter of its targeted amount.
Mick Gilligan, head of research at stockbrokers Killik & Co, pointed out that in early presentations it seemed the government, via the Department of Business Innovation & Skills, would also invest directly in Greencoat's seed portfolio of offshore assets, while utility company SSE had committed to subscribe £43 million.
These early agreements are obviously a positive sign and show how far the sector has come in as little as two years, when a similar venture planned for the alternative investment market failed.
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