David Schoenwald and Murray Rosenblith don’t fit neatly into the molds of the typical buttoned-up money managers. For starters, Schoenwald, 71, boasts a thick, salt-and-pepper beard and hair that falls below his ears. Standing in front of his expansive yet rustic Long Island home, he dresses in an open-collar plaid shirt and baggy bluejeans—evoking the spirit of Woodstock more than Wall Street.
He and Rosenblith, 69, have the history to go with the look. “I belonged to Greenpeace for a while,” says Schoenwald. “I was too far left for them,” jokes Rosenblith.
So it is fitting that the pair co-manages a fund that also doesn’t fit the mold: the $449 million
(ticker: NALFX), which invests mainly in alternative-energy stocks. Morningstar categorizes it as a World Small/Mid Stock fund, but that merely describes where the fund’s holdings currently fit in standard style boxes—and fails to capture its unique strategy. Because New Alternatives is concentrated in just one category-less sector, its Morningstar group record isn’t a perfect gauge of performance.
Be that as it may, no mutual-fund managers are as experienced investing in alternative-energy stocks as Schoenwald, who has been working on this fund since he launched it with his father, Maurice Schoenwald, in 1982. Rosenblith joined the fund’s board in 2003 and became co-manager in 2008. And with the rise of socially responsible investing—and now that climate change has become a force that Wall Street must reckon with—their sector has finally caught fire.
As a result, the fund shines when compared with its so-called category peers. New Alternatives’ 23% five-year annualized return bests 88% of the category, in part thanks to two very strong years—it was up 37% in 2019 and 69% in 2020. Its solid—albeit lumpier—previous performance has also enabled it to beat 72% of the category in the past 10 years and 65% over the past 15. It has a 3.5% load but a below-average 1.08% expense ratio. (There is also a newer, no-load share class, NAEFX, with a 1.33% expense ratio.)
Schoenwald’s father—a lawyer by training who died in 2012—got the idea for investing in alternative energy from his sailing hobby. He noticed how many people relied on solar cells to power the meters and other devices on their sailboats. When the two read up on the climate change threat, they concluded solar power had a strong future. It was 1982, however, and the Securities and Exchange Commission disagreed. “They didn’t realize climate change was a thing,” Schoenwald said. “It was a foreign concept to them.” The SEC wouldn’t allow the fund’s original name—the “Solar Fund”—because “the name was ‘too focused’” on one sector, according to Schoenwald. So New Alternatives it was.
Today solar “is not alternative anymore,” Schoenwald says. “It’s pretty mainstream.” In fact, it is so mainstream that the fund doesn’t invest much in solar-cell manufacturers as the business has become too competitive. “It’s a very difficult area because of the supply from China,” which has dumped cheap solar cells in the global market in the past, he adds.
Instead, he and Rosenblith favor what are called yield companies, or “yieldcos,” which generate electricity using renewable energy and pay out most of their cash flow as dividends.
Brookfield Renewable Partners
(BEP) is one example.
Rosenblith says in the past decade they have realized “the companies that are going to be the strongest are the end product users and developers, the ones buying the wind turbines and solar panels and constructing and operating the generating facilities.” Schoenwald likes that these companies have “physical assets” in their generation plants that have a tangible value and produce income—as opposed to solar-cell technology that can be rendered obsolete by competitors. As of Dec. 31, some 66% of the fund’s portfolio was in “renewable energy power producers and developers,” most of which were yieldcos.
That gives New Alternatives some characteristics similar to yield-driven utility funds, which it has also beaten handily, delivering a 12.9% 10-year annualized return versus the average utility fund’s 9.4% and the S&P 1500 Utilities Index’s 10.7%. (The fund paid a 4.6% yield in the past 12 months.) Yet like utilities, it has a common risk factor—interest rates.
Yieldcos are sensitive to interest rates because they pay out their profits and must borrow to invest in new renewable-energy projects. “As long as [borrowing] money is cheap, they should probably do well,” Rosenblith says. “But we’re always looking over our shoulder at interest rates, to see how these companies are preparing themselves for the day when money is not so cheap.”
Note: Holdings as of Dec. 31. Returns through Feb. 22; five- and 15-year returns are annualized.
Sources: Morningstar; New Alternatives
The duo like Brookfield “because they have really deep pockets and have used their assets in a smart manner,” Rosenblith says. Part of Brookfield’s management smarts includes looking at bankrupt paper mills that had hydroelectric assets in their operations and buying “the hydro but not the paper part” of the business at liquidation prices, Schoenwald adds.
That created the subsidiary Brookfield Renewable Corporation (BEPC), which is structured as a traditional corporation instead of a yieldco. The fund had held TerraForm, giving the portfolio a 10% allocation overall to Brookfield as a result. “We have to sell stuff occasionally, because a stock gets too large in the portfolio, but we really resist the idea of selling those companies that are doing the best,” Rosenblith says.
While yieldcos dominate the portfolio, there are some alternative-energy manufacturing sectors where the competition isn’t as cutthroat as solar cells. “There are maybe six or seven companies, total, that comprise the vast majority of wind turbine manufacturing,” Rosenblith says. So the fund owns Denmark’s
Vestas Wind Systems
(VWS.Denmark) and Spain’s
Siemens Gamesa Renewable Energy
(SGRE.Spain), two of the world’s dominant turbine manufacturers.
Schoenwald and Rosenblith also consider social and governance factors before buying or selling a stock. They sold out of electric-car maker
(TSLA) in 2019 because of allegations that it was discriminating against workers seeking to form a union and governance concerns after CEO Elon Musk tweeted about taking the company private. Regulators ultimately fined Musk $40 million for his comments, and Tesla continues to object to claims by the National Labor Relations Board that it is antiunion.
All of which is to say don’t invest in New Alternatives if you are looking for a World Small/Mid Stock fund. Buy it because you believe in the future of alternative energy and share its managers’ values.
Email: [email protected]