Green Commodities for a Complete Green Portfolio

by: Matthew Moscardi

For those of you that have been reading the Smug Investments blog, Smugly Green, you will be familiar with our total green portfolio concept. For non readers, the ever expanding universe of green, light green, and responsible ETFs are making it possible to start thinking out of the box when creating your green portfolio. In order to do it right and be properly diversified, the notion of green may have to be stretched, but it's well worth the effort to create a more fully sustainable investment portfolio that doesn't necessarily sacrifice performance.

The obvious start to any green portfolio is the green energy options, some of which I laid out in my Beginner's Guide to Green Investing on Seeking Alpha. However, green energy is just a piece of the overall puzzle, albeit it an important one. The best way to start expanding the notion of a total green portfolio is to redefine asset allocation categories - instead of Small Cap, Mid Cap, Large Cap, and Bonds, Smug Investments' allocation classes look like this:


Agriculture is used in green energy, biomass, and other green/sustainable uses. It also has just about zero correlation to the S&P 500 and other green investments, which lowers volatility and increases overall return.

Consider: DB Agriculture (NYSEARCA:DBA), ELEMENTS Grains (NYSEARCA:GRU), iPath DJ AIG Agricuture (NYSEARCA:JJA), iPath DJ AIG Grains (NYSEARCA:JJG), Market Vectors Agribusiness (NYSEARCA:MOO)


Bonds or bond funds that 1.) are in "green promoting", or 2.) use socially responsible screens are both key parts to lowering volatility through low correlation and creating income for those who need a more steady income stream.

Consider: CRA Qualified Investment Retail [CRATX], Domini Social Bond Fund [DSBFX], Pax World High Yield [PAXHX]

Diversity / Social Investments

Smug Investments considers equities or bonds that promote diversity at executive level positions or in their investment philosophies as "green thinking." These social investments are a great way to provide exposure to the overall market, as they tend to be highly correlated with the S&P.

Consider: iShares KLD Select Social Index (NYSEARCA:KLD), iShares Social Index (NYSEARCA:DSI), Parnassus Workplace Fund [PARWX], Pax World Women's Equity Fund [PXWEX]

Eco Reserve / Low Carbon

By using currency or index positions as screened using Smug Investments' biocapacity and low carbon screening techniques, it's easy to diversify globally into multiple market spaces, further lowering your overall risk. For more information on how Smug Investments does this, see this post on the blog.

Consider: iShares MSCI Switzerland Index (NYSEARCA:EWL), iShares MSCI Austria Index (NYSEARCA:EWO), iShares MSCI Brazil Index (NYSEARCA:EWZ), CurrencyShares Australian Dollar Trust (NYSEARCA:FXA), CurrencyShares Canadian Dollar Trust (NYSEARCA:FXC), CurrencyShares Swedish Krona Trust (NYSEARCA:FXS)

Energy / Technology

Assets whose primary, or in some cases, secondary product is devoted to green energies or technology are the obvious first choice for green investors, and a staple in any green portfolio. Despite some high correlations to each other, it even makes sense to hedge yourself in multiple energy fields now that individual ETFs are available.


Wind - First Trust Global Wind (NYSEARCA:FAN)


Total Green - Market Vectors Alternative Energy (NYSEARCA:GEX), PowerShares Global Clean Energy (NYSEARCA:PBD), PowerShares WilderHill Clean Energy (NYSEARCA:PBW), PowerShares WilderHill Progressive Energy (NYSEARCA:PUW)

Technology - PowerShares Cleantech (NYSEARCA:PZD), First Trust NASDAQ Clean Edge (NASDAQ:QCLN)

Carbon - iPath Global Carbon (NYSEARCA:GRN), ELEMENTS Global Warming (NYSEARCA:GWO)

Solar - Market Vectors Solar Energy (NYSEARCA:KWT), ELEMENTS Solar Energy (NYSEARCA:TAN)

Real Estate

While still a young industry, there are a few green or "green leaning" REIT and real estate management companies. Commercial real estate tends to provide excellent yields and has little relation to residential real estate, thus escaping the housing crisis.

Consider: Liberty Property Trust (LRY)

Waste / Recycling

Even though assets involved recycling of all types of waste, waste technologies, and other recycling initiatives tend to be highly correlated to the S&P, as well as have higher betas, they are a great long term addition to a green portfolio.

Consider: Market Vectors Environmental Services (NYSEARCA:EVX), Winslow Green Solutions Fund [WGSLX]


Water has an moderately high correlation to the S&P, but still should be considered a green commodity. The focus is on assets whose primary business is the production, conservation, and recycling of water.

Consider: Claymore S&P Global Water (NYSEARCA:CGW), First Trust ISE Water Index (NYSEARCA:FIW), PowerShares Water Resources (NASDAQ:PHO), PowerShares Global Water Portfolio (NASDAQ:PIO)

Diversification is key for any portfolio, even more so if you want to be a more "pure" green investors. Though pure green is still a theoretical concept, there's no reason not to start now, especially with the bevy of excellent ETF, ETN, and mutual fund options open to the retail investor and the DIYer.

Disclosure: Though I may own and use this asset in my portfolios, it may not be the correct fund for your individual situation, so these posts are by no means a recommendation that you purchase a particular asset or fund. Please read the prospectus in full before choosing to invest, and if necessary, consult a financial professional (understanding that your financial professionals also have conflicts of interest in many cases when making suggestions).

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