Home Depot Turning Green
Are Green Mutual Funds and/or ETFs Worth Buying?
Just over a year ago my wife and I moved into our new house in the tiny town of Nahant, the smallest town by area in Massachusetts--slightly more than a square mile stuck out to sea a bit north of Boston. Like with any new house, it takes some time to figure everything out. For us, the immediate issues when we moved in were what color to paint the walls, what we should keep our cats from climbing on and what room to give to our then-expected, since-arrived baby, Lila. Like anyone who has moved into a new house or apartment, you know other things that take longer to determine--which neighbors are nice (just about all of them), what restaurants deliver (reliably, only Chinese), and how much utilities end up costing (a lot!).
There is no escaping the fact that heating a home in winter isn't going to be cheap. And last year the average homeowner paid a lot more to heat their house at least 10% more no matter what fuel you used--natural gas, propane, oil and even, as my brother-in-law in Maine reported--firewood. This year, the expectations are for prices to hit us all harder. The Energy Information Agency says electricity and propane heat will rise about 11% each, natural gas 18%, and heating oil a stunning 23% to around $2,300 for the average household.
Since Lila arrived, my wife Jeanne won't go for me playing Snow Miser and unfurling my chilled finger to turn the thermostat down. Since we're committed to heat the house to a Florida-like 68 degrees (OK, OK, Jeanne, 70), we arranged for our energy provider, National Grid, to come by and give us a home energy audit. Apparently, a lot of people have had the same idea, since we had to wait four months for our appointment, but he arrived on time last Tuesday. He measured our square footage, checked out our insulated attic, examined our Energy Star appliances and high-efficiency gas furnace, praised our on-demand water heater and even peeked at what apparently is fantastic wall insulation. The good news: we're the best house he's ever checked out. And that's the bad news, too. My hopes for trimming the heating bill this winter went out the window--or would have, had I not been so good about caulking them when we moved in. "Oh well. Everybody wishes they could pay less. Be glad you're not using oil," the examiner told me, slipping a couple of CFL (compact fluorescent light) bulbs into my hand as he departed, like some energy high roller.
Still, I thought, there has to be some more savings to eek out. So I went to Home Depot (HD) and bought some window weatherizing film to cover our cellar windows and some extra insulation to wrap around the few exposed spots of our pipes. I wasn't the only one poking around for a heating bill edge. I presumed the October market scare would have kept people home, but there were plenty of cars in the parking lot and more than a few folks who seemed to be scrutinizing energy-saving light bulbs for the first time.
No doubt, stores like Home Depot are hurting from the housing market crash, but they are seeing a strong uptick in people looking to minimize their energy bills and maximize their efficiency. In a recent story, the Atlanta Journal-Constitution noted that Home Depot saw a $2 billion surge in people buying environmentally friendly products, including CFL bulbs, low-VOC (volatile organic compound) paints and programmable thermostats since it started its Eco Options program in the spring of 2007. The big box chain is now looking to capitalize on everyone's newfound frugality by pushing Eco Options more, offering a do-it-yourself home energy audit questionnaire in its stores and rolling out new ad slogans, including the cringe-worthy "Caulk, Baby, Caulk."
Beyond anecdotal evidence, survey after survey finds Americans are focusing in ever-greater numbers on being Green, be it for money savings or for the long-term near-certainty global warming will wreak havoc if left unabated. A poll released in November by Better Homes & Gardens taken at 15 different home shows across the country found some interesting results. More than half of the 2,300 people surveyed said they had spent more money on a product in the last 12 months because it was Green. One third said they were willing to spend $5,000 or more on eco-improving their house if it meant it would increase the sale value of their home. Other insights from the poll: 73% of people practice recycling, 69% had replaced incandescent lights with CFLs in the past 6 months, 57% report conserving water in the past half year, 51% adjusted the thermostat regularly, while 30% purchased energy efficient appliances. Most of those things are just up Home Depot's--and Lowe's (LOW)--alley.
Yet other surveys show that while Americans are rushing to embrace Green, they are also a little confused about what, exactly, they are being told. An April survey by the Boston College Center for Corporate Citizenship and marketing firm Cone LLC, found a "Green gap," in that Americans want to buy Green products and believe environmental claims but suspect maybe they are not being told the truth. For instance, 47% of people trust the companies to tell the truth in their environmental claims and 45% believe companies are accurately relating their impact on the environment. Yet at the same time, 80% of Americans want third-party certifications on products and 76% want government regulation. All that means there's a pretty large segment of people in there that trust corporate America, but only so far as they can throw them.
The study's authors say the indication that Americans are both willing to trust companies and also want third party verification indicates how complex Green issues can be and how many people suspect they don't fully understand the myriad issues involved. They may have a point. I'll admit that when my tub drain was clogged recently I bought the "organic" orange cleaner from Zep at Home Depot. That's even though I know the term "organic" means nothing with regards to chemical products and by every other measure on the label the cleaner seemed just about identical to the same nonorganic, non-scented product by the same company one shelf over. I hope the "organic" cleaner was better for the environment, but I fear the only true difference was that I paid $3 more.
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As Editor of the Cabot Green Investor, I know people encounter many of the same issues in Green investing. For instance, there are a lot of mutual funds that say they are Green and socially responsible, but when you drill down into their holdings, there is little to differentiate them from plain vanilla large-cap funds. Many ostensibly Green funds have Microsoft, JP Morgan Chase and Pepsico as their top holdings. Talk to managers of these funds and there is always a roundabout argument to be made for companies like these being Green, not that I know what they are. Microsoft uses very little packaging, perhaps? The low prices of Pepsi's Taco Bell keep the U.S. Mint from having to print more bills? JPMorgan Chase is recycling taxpayer money? Very often, the label of "Green" and "socially responsible" on mutual funds is just a guise to justify greater fund fees and expenses.
Many people instead turn to Green ETFs. Yet with ETFs you not only buy the good names in Green, they buy plenty of the bad ones as well--the companies with poor strategies, obsolete technology and sometimes even "greenwashing" executives, those who claim they are green because it is trendy. For every winner you get with an ETF, you grab half a dozen also-rans, too. That may pass in a raging bull market, which lifts every stock, but not in a mild bull market, let alone a sideways or bearish one.
That's why at Cabot Green Investor, we focus on the most promising of Green stocks, weeding out the winners from losers through a combination of Cabot's time-tested technical analysis and investment parameters with good solid research and a gut developed over years of investing. We aim to build a portfolio of 10 Green stocks, quickly cutting losing stocks to preserve capital for our winners. That's why the Cabot Green Investor has far outperformed every mutual fund and ETF in the Green space this year. No doubt, it's been a difficult year for everyone in the market--there isn't one stock mutual fund in positive territory for the year, Green or not, and every Green ETF is down at least 20% and most closer to 40% for 2008.
For the year so far, Cabot Green Investor subscribers have enjoyed some big winning picks, like American Superconductor (AMSC), a wind company that gave us a 40% profit on in just six weeks this summer, and a domestic environmental remediation firm we're still riding a double-digit profit on. There is no denying that with the market crash of October we're down, but just in the single-digits as of early November. I know that's a lot like a pitcher bragging about an eight-inning complete game, but we're proud of how our adherence to a proven formula has put us far ahead of the competition. The simple fact is, the more you conserve now, the more you have for later. That's true both in your winter energy bill, and your investment portfolio.
For Cabot Wealth Advisory
Editor's Note: Brendan Coffey is the editor of Cabot Green Investor, which applies our time-tested methods to the Green sector. Brendan uses proven market timing and growth stock selection to find the top Green stocks. He keeps subscribers in the market when the time is right and isn't afraid to step back when the market is telling him it's time to get out, which preserves capital for the next bull run. Right now, Brendan's building a Watch List to use as soon as our market timing indicators turn positive. There's never been a better time to subscribe.