The good news is that the UC has rejected the call by ecomentalist activists to divest from fossil fuel companies, which was the right decision for all the reasons I suggested the other day. The bad news is that:
The University of California will invest $1 billion over five years in companies and researchers coming up with solutions to climate change, part of an overall UC push in sustainability. ... UC also said it will implement a framework for sustainable investment by the end of June and become the first public U.S. university to adhere to United Nations-supported principles for responsible investment.
What's wrong with that, you ask? Well, as the WSJ explained a while back:
... investors tempted by green investing need to choose funds carefully and understand that some of these sectors can be very volatile, as illustrated by the bankruptcy of multiple ethanol and biofuel producers, as well as struggles among small solar-power companies, amid a drop in oil prices over the past year. It is also important to recognize that buying into green businesses and shunning those that are harder on the Earth's resources won't benefit the environment directly.
The thought that "if you are buying stock [in] an oil company, you are somehow giving money to the oil company" is just not true, says Brian Pon, a financial planner with Financial Connections Group Inc. in the San Francisco Bay area. Whether you're investing in a traditional energy company or an alternative-energy player, you are typically buying shares from another investor and not pumping cash into the firm. Further, he says, "an individual doesn't really have the money to affect investment markets. You're buying a hundred shares when hundreds of thousands of shares trade daily."
So you're taking on considerable risk by "greening" your portfolio, as illustrated by the WSJ's summary of the performance of portfolios of alternative energy during the financial crisis:
Among the narrow and volatile green portfolios are two ETFs that focus on solar energy: Claymore/MAC Global Solar Energy Index and Market Vectors Solar Energy.KWT +0.63% They are both down 45% over the past 12 months, while the Standard & Poor's 500-stock index declined 6.9%. ...
PowerShares WilderHill Clean Energy, a somewhat broader alternative-energy portfolio, has also taken investors for a bumpy ride. The ETF gives investors exposure to areas including ethanol, solar and wind power, and energy efficiency. Over the past year, the fund—one of the larger green portfolios, with a recent $783 million in assets—returned a negative 27%. Over the past three years, it has declined an average 13.5% a year, trailing the S&P 500 by more than eight percentage points.
Ouch. And the news hasn't gotten any better. The three year annual return on S&P's Global Alternative Energy Index is 7%. Compare that to the S&P 500's three year annual return of 22.7%. The Fidelity Select Environment and Alternative Energy Portfolio has underperformed the S&P 500 consistently.
So pardon me if I can't work up much enthusiasm for this new UC policy.