Bozena Jankowska

RCM

In a special Earth Day call, Bozena Jankowska, head of RCM’s Sustainability Research Team and portfolio manager for the Allianz RCM Global EcoTrendsSM Fund, talked about the current landscape for environmental investing and the sector’s potential bright prospects.

A challenging period may be stabilizing After strong surges in 2007, the clean technology sector declined steeply in 2008, as investors fled any sector perceived to bear higher risks. Since then, stock markets overall appear to have stabilized somewhat, with clean technology poised to enjoy unique benefits.

Fiscal stimulus is green

As the world confronts an economic crisis, one might expect that climate change and other environmental issues would take a back seat in terms of government attention. Yet the opposite appears to be emerging. Governments in the U.S., China and across Europe are clearly indicating through their respective stimulus packages that their commitments to environmental investment have not weakened.

Notably, the Obama administration’s Recovery and Reinvestment Act has highlighted the creation of green-collar jobs as a means of kick-starting the economy. The President has likewise stated his intention to increase deployment of alternative energy and energy efficiency to reduce our addiction to foreign oil and address global warming.

Elsewhere, China has announced that some 20% of its overall stimulus package has been dedicated to clean technologies, including a very attractive subsidy for the solar space. The U.K. has also allocated a portion of its recovery package toward green projects, as have Korea and Japan.

Environmental accountability for business

The broad sweep of the Obama environmental proposals is forcing Americans to change the way they think about energy use and the environment. In particular, businesses will find their green credentials under increasing scrutiny as regulations tighten.

The impact of environmental investment on companies may not be immediately apparent, as it will take time for money to begin flowing. Over the mid- and long-term, however, we believe there will almost certainly be a clear distinction between companies that are forward-looking and innovative and those that lag. Indeed, in a recent environmental investors’ survey conducted by Allianz Global Investors, 71% of respondents agreed that U.S. automakers would be in better shape today had they gone green a decade ago.

Potential benefits of an actively managed fund

Heightened government focus on the environment has enriched the range of opportunities for investors, in our opinion, among them: green infrastructure; technologies for wind, solar and smart grid power; vehicle fuel efficiency; and products and services for water and pollution control.

The clean tech landscape can be challenging to navigate, however, making active management particularly helpful. Allianz RCM Global EcoTrends Fund draws on the environmental and research expertise of its analytical teams to invest across a global spectrum of environmental technologies, focusing on three themes: eco energy, clean water and pollution control.

We believe the portfolio is dynamically allocated as well, allowing the Fund to be appropriately positioned through a variety of market conditions. We are currently favoring investments in wind power, which we believe is most likely to benefit first from alternative energy build-outs in the stimulus packages. Our wind holdings range across the value chain, from turbine manufacturers to wind farm developers to builders of infrastructure. We are also finding attractive opportunities in clean water.

Looking back some 15 years, we are seeing valuations at historic lows. This scenario has created attractive entry points for companies we like but whose stocks have appeared too richly priced. Although we believe the global economic weakness will persist at least through the first part of the year, we have been prudently deploying our cash reserves to add to our positions.

Green shoots of a greener economy

Despite the sector’s recent volatility, we believe the accelerating pace of climate change and resource demand has made it clear that the fundamentals for clean technology should remain strong for some time. We may be in the midst of a particularly opportune moment, moreover, as governments around the world are looking to restore our planet’s economic health by tending to our environmental health as well.

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