Play to Winslow
A green financial expert dishes up election-related investment tips
29 Oct 2004
Matt Patsky knows his green.
Patsky is the portfolio manager for the Winslow Management Co., a pioneer in environmentally responsible investing. Winslow was founded in 1984 by Jackson Robinson, who believed -- in opposition to much of the investment world -- that companies which benefit the environment also benefit shareholders.
In this exclusive interview, Patsky dishes up his views on green investing on the eve of the election. And you better listen up: Winslow normally only offers its advice to clients with an account minimum of $3,000,000. Yeah, that's three million dollars. Courtesy of Patsky and Grist, you're getting these hot stock tips absolutely free.
What impacts do you expect the election to have on the stock market?
What I've been telling people is that in the very short term, the market will probably react favorably in November and December, regardless of who gets into office. That's because what makes the market nervous, what makes it volatile, is uncertainty. And right now, with the presidential race so close, people are worried.In the longer term, the results of this election will have very profound impacts on different investment sectors. There are sectors that will do better or worse depending on how the election turns out. For example, companies committed to environmental solutions will have an easier time if the election goes to Kerry. Corporations with negative environmental records will do well in a second Bush term.
In the macro, I hold that a Kerry election will be much better for the market overall in the next four years.
Where are you telling investors to put their money if Bush wins?
I recently joked with a reporter that a play on Canadian real estate would be a good opportunity.
But seriously, where should green investors put their money?
I can't tell you there is a safe place for green investors to put their money if Bush gets reelected. Jack Robinson, my partner, who has been at this business for 20 years, has previously shown that corporate concern for minimizing environmental impacts translates into a better share on returns. That proved true under Reagan, and Bush the First, and Clinton: Stocks of companies that were good environmental citizens out-performed those that weren't. That's the concept our Winslow Green Index -- an index of 100 "green-screened" companies -- is based on.But we've seen a reversal of that trend, for the first time ever, over the last two years. In that period, the best performing stocks in the S&P 500 were the companies that have been the most flagrant environmental polluters. Winslow's Dirty Dozen -- the 12 worst environmental citizens in the market -- have outperformed every quarter for two years running. That has never happened before. And that is because investors are starting to believe there is no liability: that the EPA is ineffective, that there is no enforcement, and that polluters will never have to pay the piper.
It is a pretty dismal picture for green investors. The short answer is that you probably won't find a bunch of safe, socially responsible places to put your money under Bush.
What about investments in alternative energy?
Under Bush, I think there will be continued pressure downward on renewable-energy stock. There has been this fascinating trend under his administration: Despite the fact that the long-term outlook for alternative energy must necessarily be good, the stocks have been pummeled over the last four years. Even higher oil prices haven't lifted that dark cloud. It's counterintuitive. You would think $50 per barrel oil would be good for wind power, right? You would expect wind turbine companies to go up, but they continue to go down. That trend would probably continue under a second Bush administration since it will be supportive of more fossil-fuel exploration and development. Under Kerry, that could all change.If you want to invest in oil, the cleanest company by far, in terms of an attempt to do things in a more responsible way, is BP, or possibly Shell. They're about the only somewhat environmentally sensitive way to play oil. Both companies have active solar and wind efforts, although Shell has managerial issues that revolve around recently reported falsely inflated forecasts for the company's oil reserves. We don't know how that will play out. BP, on the other hand, has a very solid record.
What would a Bush win mean over the long haul?
Currently, there is absolutely no fiscal discipline in Washington. That is going to have incredibly negative impacts as we go out over the long term. We are literally bankrupting the country. Under Republican control, that is where we stand. It is an interesting twist that we need to elect a Democrat in order to bring fiscal discipline to Washington. We now have a president who seems convinced that there is no penalty for running unprecedented deficits. If your time frame is short, if all you're interested in is making sure you can make as much money as fast as you can over the next four years, then none of this really matters.
But we have to remember that the U.S. economy is funded by foreign investment. Without that, we're in trouble. If we continue to see pressure on the dollar, to see the U.S. reputation slide, foreign investors could start to question whether or not we are a place to put their money. You could see things come unglued, in a pretty ugly way, pretty quick.
I don't want to be too alarmist about it, but there really are a lot of underlying issues that are more dramatic now than they have ever been. There is a reason why [billionaire] George Soros is taking out full-page ads opposing the administration. What Bush does will ultimately affect the markets in a very big, very profound, and negative way.
What would a Kerry win likely mean for investors?
There are many right now in the financial-service industries touting the idea that if we elect Kerry then the markets will collapse. That is absolute nonsense. That argument doesn't hold water from a historical standpoint or based on Kerry's proposed policies.In the short term, if Kerry wins you'll have that market rally I spoke about, lasting through November and December. Then, over the next four years, a Kerry administration will likely reinvigorate enforcement of environmental rules. The EPA will grow teeth. That would be a big change, and especially bad for our Dirty Dozen. They'll be companies worth shorting, because they are going to get hit hard. Take a company like Kerr-McGee [a global energy and inorganic chemical company]. They're dumping toxic perchlorate in the Colorado River and asking President Bush to intervene to get Congress to pass a law saying they don't have any liability. Under Kerry, that's likely to come back to haunt Kerr-McGee. They're not only going to have to stop dumping, but also will be responsible for cleanup. So they are going to be a bankruptcy candidate, as are other big polluters.
I think that there will be a lot more emphasis on developing renewable energy under Kerry. There will be a lot more emphasis on clean coal technology. Both candidates say they support that, but under Kerry, we think there will be a real attempt to develop technology to reduce coal emissions, rather than just giving that cleaner technology lip service as Bush might do.
Macro, longer term, we would also hope that there is repair done to our country's international reputation. People will hopefully get more comfortable with international travel again, and the travel industry will pick up. Maybe the airlines will actually survive. Right now people aren't traveling. They are afraid.
Given our multi-trillion dollar deficit and the growing cost of the war in Iraq, can a Kerry win really make a big financial difference?
Can we shift from going in the wrong direction to going in the right direction? Can we get out of Iraq and repair the damage done to the U.S. economy? Not instantaneously. And it will be a difficult task. To do it, Kerry is going to have to make a lot of hard and unpopular decisions. If he is up to that, he won't likely get rave reviews. And he won't likely have Congress on his side. They will certainly be using the veto. Let me put it this way: Considering what he is up against, I do not think Kerry will enjoy a second term.But no matter who is elected, it is going to be an ugly four years. It may be less ugly, and put us back on the right track if we elect Kerry instead of Bush, but it is still going to be a very difficult four years.
Are there any safe long-term green investment bets under either Kerry or Bush?
Putting money to work in green funds in Europe wouldn't be a bad way to move, because the European economy has remained stronger and isn't so impacted by U.S. fiscal policy. The market is very well-developed there, with at least a dozen mutual-fund complexes doing green investing. For example, the largest in the U.K. is Jupiter [Asset Management Ltd.] and its Jupiter green funds. You can also look at green investing in Canada, Japan, and parts of Asia. There are actually companies in China now that are trying to do a better job being green than companies in the United States.
What about socially responsible micro-credit as an investment opportunity?
Micro-credit is very, very interesting. It offers very safe, very socially responsible investing. There are community-based and internationally based micro-credit opportunities, where you are lending money or providing debt financing [in the developing world]; you're not buying stock.I was just asked to join the board of a company that does micro-lending for sustainable agriculture projects in the Third World. That company has a very solid return, and the results have been amazingly predictable and steady. The loan default rate is exceedingly low, because these people pay their bills! It is not a huge return. But you can get a solid 5 percent, with something like the certainty of a bank deposit.
This is a worthwhile activity for somebody who is environmentally and socially conscious and wants to get an adequate return on investment, but is not willing to take a lot of risk.
My investment counselor has this big chart in his office that he points to every time I get nervous about investing. It shows that when you put your money into the market for the long haul, you always stand to do well. Do you think that future performance will continue to model past performance?
I think you are hitting on something people don't want to acknowledge, that we may go through a period where financial assets do not perform as well as they have historically. If you look over the last 50 years, you will see a 9 percent annual average return on the stock market, despite boom and bust. People say that if you ignore all the noise of ups and downs, that's the gain on investment you'll see. But we are living in an unusual time. Could we be in for an extended period where returns on financial investments are lower than that past 50-year average? Maybe. But we don't know.
Considering what environmental scientists are saying about the severity of climate change and the potential for other nasty environmental shocks in the near future, how should people invest?
You'll want to keep a mix of fixed income and equities. It's advisable that you invest in mutual funds in order to maintain a diversified portfolio. Anybody who cares about the environment should be looking to put some of their money in green mutual funds, but there aren't very many out there, and unfortunately they don't attract very much in terms of assets. That's not because people don't care. It's because there is this perception that doing the right thing with your money will cost you. People want to retire comfortably, and not end up living in a trailer park because they gave all their money to the environmentally responsible alternative-energy companies. So we need to get to a point where people understand that they can do green-screened investing in a way that is not detrimental to returns, but that protects and enhances their investment. For example, at Winslow we've been doing green screens that will give people a bond portfolio or large cap portfolio that cuts out the companies with the largest, most egregious liability risk [from severe environmental factors such as climate change], including insurance companies, oil companies that might be sued by Third World and island countries, etc. There are a lot of risks out there, and as the environmental problems become more real, those risks will only grow. And more people will begin to see that green screens are a way to better shield their investments.
Also in Grist
The Week's Most Popular
From the Archives
The Godly Must Be Crazy, by Glenn Scherer. Christian-right views are swaying politicians and threatening the environment.
Jenifa, Oh Jenny, by Keith Schneider. An interview with Michigan Gov. Jennifer Granholm.
Don't Get Mad, Get Yvon, by Amanda Griscom Little. An interview with Patagonia founder Yvon Chouinard.
You are not logged in. Thus, you cannot post a comment. If you have a Gristmill account, log in below. If you don't have a Gristmill account, well, by all means go make one! Meet you back here in five.