By David Randall
NEW YORK (Reuters) - Environmentally conscious investors are using their pocketbooks to protest President Donald Trump's plans to slash environmental regulations, fuelling a rally in funds that only invest in companies that meet progressive criteria for sustainability.
From the start of November to the end of January, investors poured $1.8 billion into actively managed equities funds in the "socially responsible" category, according to Lipper data. In the same period, there was a net outflow of $133 billion from funds that do not have environmental or social mandates.
Trump was elected president on Nov. 8.
Investors worried that Trump's policies may imperil causes they believe in are hoping an influx of flows will help keep companies alive.
"If clients see the federal government withdrawing from a space they think is important, they may actually be more active in wanting to enforce their views through the dollars allocated," said Vincent Reinhart, chief economist at Standish Mellon Asset Management.
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The inflows are a boon for fund managers but also a challenge, requiring them to find companies whose share prices have a chance to climb despite less favourable federal policies.
For instance, shares of solar energy companies took a beating after the election, sliding 11 percent by year end on concerns the future of U.S. tax credits under a Trump administration, though they have recovered somewhat since then.
Still, cautious fund managers from Fidelity, New Alternatives, Calvert Investments and others are scrutinizing water technology and wind power shares, which should benefit from new federal infrastructure spending and a push by states such as California toward more renewable power generation.
Managers say water technology stocks should see an uptick from Trump's campaign promise to spend $1 trillion on repairing and improving the country's infrastructure. Wind stocks are attractive as that energy source is proving more cost-effective in growing areas of the country like California, which plans to get half its energy from renewable sources by 2030.
"If you look at where the policy is changing the fastest, it's at the state level, and we see places like California continuing on that trend regardless of what is happening on the federal level," said Kevin Walenta, who manages the Fidelity Select Environment and Alternative Energy portfolio. He has been adding to his positions in Spanish wind energy company Iberdrola SA and US-based water and plumbing company Comfort Systems USA Inc .
BETTING ON STATE POLICIES
Trump has not yet called for ending tax credits for solar and other renewable energy, though he has expressed doubt about the role of solar energy, bemoaned the loss of coal-mining jobs and blamed wind turbines for ruining picturesque landscapes.
Ahead of the election, power companies had already started to pivot away from solar and invest more in wind, with companies including Southern Co , NextEra Energy Inc and Xcel Energy Inc announcing plans to expand wind-generating capabilities at a time when technology has helped lower its cost. [L1N1FZ1GR].
Wind power costs average between $32 and $62 per megawatt hour before subsidies, compared with an average between $49 and $61 per megawatt hour for utility-scale solar arrays without subsidies, according to a December 2016 report from Lazard. Coal power, which Trump has pledged to revive, costs between $60 and $143 per megawatt hour, the report notes.
With that cost structure, along with the potential increase in jobs from building and maintaining wind turbines, even solidly Republican states should continue to invest in renewables, said Murray Rosenblith, co-portfolio manager of the New Alternatives Fund .
Rosenblith has been adding to his positions in wind companies Vestas Wind Systems and Gamesa Corporacion Tecnologica SA , both of whose shares are up 10 percent or more since the start of the year.
"These are growing industries in states that are bringing back jobs," he said. "Even if Trump wants to pull tax credits back as a political gesture he's not going to find a lot of support in the party at large."
(Reporting by David Randall, Ross Kerber and Nichola Groom; Editing by Jennifer Ablan and David Gregorio)