Portfolio 21 (PORTX). Management takes a unique approach to investing in alternative energy, only considering companies that integrate environmental sustainability into their business practices. Carsten Henningsen, director of the Portland, Ore.-based Portfolio 21 Investments, uses the image of a funnel on its side to explain the fund's approach. The side sloping downward represents the declining supply of natural resources, while the side sloping upward represents the growing global population. "The planet is finite," Henningsen says. "Neoclassical economics only understands unlimited growth, but it's not physically possible to have unlimited growth." Companies that take steps to adapt to that environment have a competitive advantage going forward, he says. "We have a narrowing bandwidth in which to operate a business, so we're looking for companies that are positioning themselves to move through the funnel," Henningsen says. "They might see their competition not paying attention or hitting the walls of the funnel, but we're really looking for companies with a higher probability of adaptation within the context of ecological limits."
Portfolio 21's manager Jim Madden cites the fund's stake in Google as an example. According to Madden, Google has committed to cut the energy consumption of its data centers, installed solar panels, and virtualized servers to increase efficiency. "If [Google's] competitors don't do that and [energy] prices continue to rise, it's going to be a larger component cost wise for competitors," Madden says, which could affect revenues and a company's bottom line. "So comparatively, Google fares much better."
This strategy has resulted in a broader, more diverse mix of holdings for the fund, which includes European companies such as Swiss pharmaceutical giant Novartis and Spanish telecom firm Telefónica, along with U.S. companies such as IBM. "The portfolio has turned out to be global with a preference for Northern Europe," Henningsen says. "It shows you where the government leadership has been on the issue of sustainability. Government leadership often drives regulation, which drives public policy." The long-tenured and experienced management team also evaluates a firm's record on employee relations, human rights, community involvement, and product safety before investing, and avoids companies with involvement in nuclear energy, tobacco, gambling, or weapons.
Like most other funds in its group, Portfolio 21 has encountered some bumps since its 1999 inception, but has a relatively good record over the long term. Its 4.7 percent annualized return over the past five years ranks the fund in the top 29 percent of Morningstar-rated world stock funds.