The Sunday Times - Ilija Murisic - Global Warming Index - Weather Derivatives

1. May 27, 2007
How to profit from global warming
A new index lets you make money from rising temperatures, but
it’s not the only way that you can climb on the green bandwagon
Ali Hussain
INVESTORS are being offered the chance to profit
from climate change with the launch of an index
that lets you bet on rising global temperatures.
The UBS Global Warming index will initially track
temperature variations in 15 American cities,
making so-called “weather futures” available to
ordinary investors for the first time. They have long
been used by the likes of agricultural firms to hedge
against bad weather.
Investors will be able to bet on the index using
certificates, which are essentially like tracker funds,
and warrants, a type of option on the index
available via UBS’s private bank.
The launch seeks to take advantage of the growing
mania for “green” investment, which has seen
alternative energy stocks such as wave and wind
power generators leap by 300% over the past three
years, according to ABN Amro, an investment
bank.
These returns have led some commentators to liken
green energy companies to the technology bubble,
especially as Silicon Valley entrepreneurs who set
up tech firms back in the 1990s are now moving
into renewable energy stocks.
However, City analysts say that over the long term
the potential is huge. Ian Richards of ABN Amro
said: “There has been a surge in eco-awareness over
the past 12 months and the appetite for change has
never been greater. The direction of government
policy is clear and should result in investment
opportunities.”
The government’s white paper on energy,
published last week, made a number of
recommendations – including the tripling of
electricity from renewable sources by 2015 and
increasing the use of nuclear power.
The European Investment Bank also sought to get
in on the act last week with the launch of the Pan-
European Climate Awareness Bond, which will be
available from Tuesday from high-street banks and
advisers.
The bond, issued in tranches of !100 (£68) each,
offers a minimum return of 105% of your
investment at maturity in June 2012, while helping
to fund climate projects.
Here we offer some other ways to profit from
climate change.
Uranium As part of the energy white paper, the
government gave the go-ahead for a new
generation of nuclear power plants, so fund
managers have been increasing their holdings in
uranium, nuclear’sraw material.
Ian Henderson, manager of the £1.1 billion JP
Morgan Natural Resources fund, has just increased
his holdings in uranium companies to 7%,
including SXR Uranium One and Ur Asia.
Henderson said: “Just a few years ago we wouldn’t
have touched uranium but now we can see a clear
market demand and short supply.

2. “Nuclear energy is an increasingly important source
with 430 power plants now depending on uranium
to generate energy, and with 80 plants under
construction or planned for completion within the
next 10 years.”
Smart meter firms The government last week
proposed that all homes should be fitted with
“smart” meters, which will monitor housesholds’
use of energy and so make it easier to cut
consumption.
Charlie Thomas of the Jupiter Ecology fund tips
Itron in the US, which is one of the largest
manufacturers of meter readers.
Other good bets are Spice, which is a smaller UK
firm that installs meters, as well as BGlobal, which
makes them.
Renewable energy stocks Peter Michaelis, who
runs the Norwich Union Sustainable Future fund,
recommends the UK-based firm Romag, which fits
glass round solar cells. “Many new office buildings
are keen on having some form of solar energy,” he
said. The firm supplied the mayor of London’s
office, for example.
Outside Britain, he likes solar energy stocks such as
the Renewable Energy Corporation, a Norwegian
company that produces the silicon used in solar
panels. Michaelis predicts growth of 50% a year for
the firm in the next couple of years.
Carbon credit firms Britain is leading the
European carbon-credits trading scheme, set up in
2005 to limit emissions. The credits are bought by
firms that are unable to remain within their CO
those that have a surplus.
Michaelis recommends Eco-securities, Trading
Emissions and Camco, all of which source carbon
credits for sale into the European trading scheme.
Ethanol companies Ethanol, the most common
bio-fuel worldwide, is typically produced from
wheat, corn and sugar cane. Soaring demand for
biofuels has led to increased demand for the raw
ingredients, pushing up prices.
Investors can bet on their prices through exchange
traded commodities, which are index funds that are
traded like shares.
Energy funds Justin Modray of Bestinvest, an
adviser, said alternative-energy investing is
potentially lucrative but can be a high-risk area,
with many of these firms very dependent on a high
oil price. You can reduce risks by buying a fund
but these, too, can be volatile.
Modray said: “Investors are likely to have high
exposure to the oil price through their existing
portfolios, so adding an alternative energy fund
may be a step too far at present. If you do invest
you might hit the jackpot shorter-term, but plan to
invest for at least 10 to 15 years in case you don’t.”
Modray recommends the Merrill Lynch New
Energy Technology investment trust, headed by
Robin Batchelor, though he warns its volatility can
be high.
Impax Environmental Markets investment trust
provides a little more diversity by also investing in
water treatment, pollution control and waste
management technologies. The Jupiter Green
investment trust invests across a range of areas
including clean energy, water management and
green transport.
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