Best stock to invest in – High Income Green Investing For Small Investors



Best stock to invest in

Tom Konrad Ph.D., CFA

Until recently, green income investing was an oxymoron.

Most companies people think of as green (think Tesla Motors (TSLA)
or First Solar (FSLR))

are relatively new companies that are investing all of their profits
(such as they are) back into the business.  Meanwhile
traditional income sectors like utilities, oil and gas, and coal
mining are deeply tied into fossil fuels.  Real Estate Income
Trusts (REITs) are the sole exception.  A REIT is as green as
the property it owns, and a few such companies are real leaders in
sustainable buildings… but not nearly enough to build a
diversified portfolio.

The Birth of the Global Green Equity Income Portfolio

In 2013, with the IPOs of Hannon Armstrong (HASI),

NRG Yield (NYLD
and NYLD/A),


and Pattern Energy Group (PEGI),

there were finally enough high-income green stocks (if you include
international stocks) to build a diversified portfolio.  In
December of 2013, I teamed up with Green Alpha Advisors to
manage a green, fossil fuel free portfolio designed produce a high
level of dividend income which we hoped to persuade Shelton Capital Management to
use as the basis of a mutual fund, joining the growth-oriented Shelton

Green Alpha Fund (NEXTX)
as a natural complement.

Fossil Fuel Free, or Green?

We chose to make the portfolio fossil fuel free (FFF) because that
is part of the Green Alpha brand.  They have one of the
strictest definitions of FFF in the industry, and it is an important
part of their identity.  My own definition of green is
considerably broader.  For me, a company is ‘green’ because of
its effect on the environment. If our economy would be doing more
damage to the environment if the company did not exist, or if the
environment benefits as the company grows, then the company is
green. 

In 2014, I started to become frustrated with the difference between
our definitions of green.  The pure fossil fuel free approach
eliminated several of the most attractive green income stocks from
the portfolio.  These included Brookfield Renewable Partners (BEP),

TransAlta Renewables (TSX:RNW

or OTC:TRSWF), Primary

Energy Recycling, and Capstone

Infrastructure.  The last two don’t have stock tickers
because they have been (profitably for investors) bought out since
then.

In order to hedge my bets in case Shelton decided to pass on the
mutual fund, and because of this frustration, I started a second
seed fund in May 2015.  This second fund used the same
approach, but my own, broader, green criterion.  I call this
second fund the Green Global Equity Income Fund GGEIP, and the
fossil free version FFFGGEIP.

Performance

Both portfolios have built up strong track records, as you
can see from the following (after fees) performance chart and table
below.  In 2014, there was no index of high income green
stocks, so I have used the SDY, SPDR S&P Dividend ETF of general
high income stocks as a benchmark.  In May 2015, YLCO,
the Global X YieldCo ETF, which does focus on high income green (but
not fossil free) stocks as a benchmark from that point on.

Fund/Benchmark 2014 Total Return 2015 Total Return 1/1/2016 to 5/31/2016 Tot.Return Annualized since inception
GGEIP 1.5% 11.6% 19.5% 12.9%
FFF-GGEIP 4.2% 12.2% 9.9% 10.6%
SDY 13.8% -0.8% 11.2% 9.5%
YLCO 3.6% -25.2%


Seeking Mutual Fund Companies

Despite the strong performance, Shelton decided to take a pass on
either version of GGEIP last year, and I have been looking for a
different mutual fund company to launch the fund since.  I’m
currently speaking with two. 

Since this would be a new category of mutual fund, both are
uncertain as to total demand.  To me, the need seems
obvious.  The need for current income is common for retirees,
as well as endowments and foundations.  A report from Bloomberg
New Energy Finance identified the difficultly

in replacing high income fossil fuel stocks as a sticking
point for investors seeking to divest from fossil fuels.  So
the demand for a high income green alternative will come from anyone
who currently owns REITs and MLPs, but wants to divest from fossil
fuels.

Why I Built The Green Equity Income Motif

While I was pondering how to demonstrate the demand for my fund, Jigar Shah,
the President of private clean energy infrastructure investment fund
Generate Capital
suggested that I start a Motif on the Motif

Investing platform.  Jigar was also a co-founder of
SunEdison (SUNEQ),

but he left long before the company got itself into its latest
troubles.  He can also be heard weekly on my favorite podcast,
The
Energy Gang
(Soundcloud,
iTunes).

The Motif platform allows investors to essentially build baskets of
stocks (Motifs) that they can buy and sell like exchange traded
funds for a single $9.95 commission on a $3000 , but without the
ongoing expenses of an ETF. 

I thought it was an excellent idea, and easy to implement, so I
created the Green

Equity Income Motif.

I can’t replicate the GGEIP strategy on Motif for three reasons:

  1. Motifs only include stocks on US exchanges.
  2. Adjusting or rebalancing the holdings in a Motif requires
    additional trades.
  3. I use covered calls and cash covered puts in GGEIP to lower
    volatility and increase income.  Such option strategies are
    not available on the Motif platform.

Offsetting these disadvantages is the large advantage of cost-
you can buy the entire Motif for a single commission.  And
these disadvantages are also an advantage in that the people who
may be interested in the Green Equity Income Motif are not likely
to be the same ones who will want the mutual fund… but they can
still help me demonstrate demand.

If there is significant demand for my Motif over time, I’ll
update it at least every year to add new green income stocks that
go public and replace ones which get bought out.  I’ll also
re-weight the Motif towards the stocks that I think have the best
chance of doing well in the coming year.  I called this first
version the “Green Equity Income Motif 2016″ to distinguish it
from future versions, but I intend to update it more than once a
year assuming there is demand and market conditions change.

How You Can Help (and get $100 for your efforts)

If you would like to help me start my fund, or just want a cheap,
easy way to invest in my green dividend income ideas, here’s how:

You can
get $100 for opening a new Motif account
now (I also get
$100 for referring you.)  When someone buys the Green

Equity Income Motif or future motifs I create, I’ll get $1
as well.

Even if what you really want is the fund, the $100 bonus for
signing up for the Motif account is a nice compensation for your
trouble… you can always sell the Motif and use the money to buy
the fund when it’s available.

I know most of my readers are active investors and are more
interested in investing their own money, rather than using a
mutual fund or even a Motif.  If that is you, please consider
this idea for that friend who has been asking you for advice.

Disclosure: Tom Konrad will receive $1 for each purchase of GEIM
on the Motif platform, and $100 for each new Motif customer who
signs up through the referral

link.  Tom Konrad manages and invests in The Green
Global equity Income Portfolio, which owns HASI, PEGI, NYLD/A,
TRSWF and BEP, as well as most of the stocks in the Green Equity
Income Motif.

DISCLAIMER: Past performance is
not a guarantee or a reliable indicator of future results. 
This article contains the current opinions of the author and
such opinions are subject to change without notice.  This
article has been distributed for informational purposes only.
Forecasts, estimates, and certain information contained herein
should not be considered as investment advice or a
recommendation of any particular security, strategy or
investment product.  Information contained herein has been
obtained from sources believed to be reliable, but not
guaranteed.

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