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Confessions of a Money Manager: Failure of carbon dioxide bill means a lot for investors

Ray Unger  —  6/13/2008 2:20 pm

Oops, no sooner were the electrons flying over the Internet last week on our carbon dioxide column (see "Carbon dioxide cap will change investment playing field") than the bill was shot down because some states would suffer "undue hardship." At least that's what 10 U.S. senators said in a letter sent to Senate Majority Leader Harry Reid, D-Nev., Friday as the main reason they couldn't support the Climate Security Act of 2008.

The bill would have set caps on carbon dioxide emissions and then the government would have sold allotments to those industries that emit carbon dioxide. While few expected the bill to become instant law, the failure of the bill to pass cloture to override a veto (cloture is a procedural move to end debate and move for immediate vote), meant the bill's supporters had no choice but to pull the bill from the floor. What does this mean for investors? Quite a lot.

First, it means that the federal government will move more slowly to avert the growth of carbon dioxide emissions. Thus, it will mean the market will have to tackle the problem through its price mechanism.

Second, the scope of the federal government's efforts to reduce carbon dioxide could also change. In other words, the "tax" on carbon dioxide -- via the legislation -- will be more contentious than previously anticipated. According to the letter the senators sent to Reid, "the Lieberman-Warner bill has the potential to raise over $7 trillion." That's quite a sum of money and that's why investors need to see how the bill eventually works out. It will not only affect our natural environment, but it will significantly jostle the investment landscape as well.

After last Friday's column, I received an interesting e-mail from Rick Terrien, the founder of Madison-based Business Diligence, LLC, an Internet-based company that helps entrepreneurs get started in business. Unlike some environmentalists who think only government intervention can reduce carbon dixoide emissions, Rick thinks we're entering, "a renaissance age of entrepreneurship," that will greatly influence how we transform from a carbon dioxide-based economy to an alternative energy-based economy. I think Rick is on to something.

Along those lines, let me suggest one of the newest mutual funds to address what Rick is talking about, the DWS Climate Change Fund (WRMAX $9.93). This fund came to the market last September and is managed by Deutsche Asset Management. Deutsche may not be a household word to local investors, but the asset manager is a member of German-based financial giant Deutsche Bank Group that has 78,275 employees, operates in 76 countries, and has assets of more than $3.5 trillion.

First, Deutsche Asset Management is no newcomer to this climate change idea. Since 2006, it's invested more than $9 billion is what they call climate change investment strategies. Second, the fund is quite different than many of the other environmental funds that specialize in alternative energy like solar, wind, or biomass fuels. The DWS Climate Change Fund is built on the thesis that climate change will involve a major restructuring of our entire industrial base. We'll need to rethink and retool how we manufacture goods, how we transport the goods (and ourselves), how we harness new alternative energy sources, grow crops friendly to the environment, better manage our forests, secure adequate water supplies, and overall, help the populace maintain living and health standards during this transformation.

To achieve these diverse ends, Deutsche has identified a wide range of global companies that some investors might not readily associate with such ends. Domestic companies like Johnson Controls, Emerson Electric, and United Technologies, and foreign industrial companies like Schneider Electric (France), Solarworld (Germany), Gamesa Coporacion Tecnologica (Spain), and Compagnie de Saint-Gobain (Spain), just to name a few.

The fund is currently selling at $9.93, down 7 cents from its inception price of $10 last September. Now some investors may be disappointed because the fund has not kept pace with some of the alternative energy funds. They shouldn't be because this fund isn't an energy fund. It's more like a big cap global stock fund designed to meet the challenges -- and opportunities -- that will confront us as the effects of global warming force us to convert from our existing fossil fuel based-economy to an eco-friendly-based economy.

I know many environmentalists are fretting about how petulant and shortsighted many of our political leaders are about global warming. The cap and trade bill, in particular, showed how regional interests can sway even the most ardent supporters of global warming legislation. But they should take solace that free-market forces -- namely higher energy prices -- are creating incentives to reverse global warming's impact on our world economy. The DWS Climate Fund invests in companies that have these incentives.

Ray Unger is chairman of Forward Investment Advisors in Madison. He can be reached at 833-9400.

Ray Unger  —  6/13/2008 2:20 pm