We assume you’re asking about socially responsible investing, which has become increasingly popular over the past few years. As more people grow concerned about climate change, some investors are looking for companies that can help clean up the planet.
“Nowadays, people want to align their investment portfolios with their personal beliefs. It’s about people feeling comfortable with what they are investing in,” said Mike Dowdall, investment strategist with BMO Global Asset Management. “And more companies are thinking about societal benefits.”
As with any investment, you need to make sure that a company’s fundamentals are solid before deciding to buy the stock. Are earnings and sales growing? Does the company have a lot of cash and little debt? Don’t just blindly invest with your conscience.
Fortunately, many companies that score well on various ESG metrics — environmental, social and governance — also are solid businesses. Dowdall said that BMO has an ESG portfolio and that many of the stocks in it have outperformed the broader market.
Still, investors shouldn’t go overboard with bets on socially responsible companies. Making a concentrated bet on climate change could backfire.
The alternative energy market had its share of high profile blowups, particularly with solar companies. SunEdison and Solyndra both went bankrupt.
“Thematic investing can be a helpful way to express a personal area of interest in a portfolio; however, we advise treading carefully with single-theme approaches,” said Laura Kane, head of investment themes for the Americas at UBS Wealth Management, and Michelle Laliberte, thematic investment associate, in a recent report.
“A diversified basket of themes will likely reduce volatility,” they added.
To that end, many of the alternative energy ETFs have done better than the broader market so far in 2019 — but they have underperformed the S&P 500 over the past five years.
So adopting a purely carbon neutral investment strategy doesn’t guarantee long-term success.
Source : CNN