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Green Bubble Bursts: Big Losses At Asia Green Funds Spark Move To Safety

Big losses at so-called ‘green’ equities funds this year are halting the proliferation of the once hot investment products in Asia and triggering a shift by investors in some centers such as Japan into safer bond options.

Green equities funds — a big draw over the past few years on heightened concerns on energy prices and the environment — have been clobbered as stock market volatility, economic pessimism and falling energy costs have driven investors away from the sector.

The poor performance comes as Asian governments are pumping vast amounts — spending exceeded $39 billion in 2009, with China accounting for the bulk of that — into renewable energy and other environment-related projects. It may mean that companies in the business will find it harder to attract new capital.

A third of the 20 worst-performing Japanese funds this year are green funds, with returns down a fifth or more for several of them, according to data from Lipper Inc. By comparison, the broad TOPIX index has lost just 8.6 percent.

“Environment-related funds are in a period of stagnation,” said Makoto Tsuchiya, a fund manager at Tokyo’s STB Asset Management, an arm of Japan’s No.5 bank Sumitomo Trust and Banking. “For now, it’s very difficult to attract money from investors.”

Investor withdrawals and market impact have shrunk the total size of environment-related equities mutual funds in Japan to 468.3 billion yen ($5.56 billion) as of June from 1.2 trillion yen less than three years ago, according to Social Investment Forum Japan (SIF-Japan), a non-governmental organization.

The Sumishin Environment New Deal Fund, overseen by STB’s Tsuchiya, has seen its size drop to $24.5 million as of end-August from its peak of $73 million in September 2009. The fund is down 16.6 percent this year.

The Deutsche Global Warming Prevention Equity Fund of Deutsche Asset Management (Japan) is down nearly 20 percent in 2010 and has seen its assets drop 36 percent this year to $292 million as of end-August, according to Lipper, a unit of Thomson Reuters.

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