It's a risky fund, but Winslow Green Growth has a fine record and a veteran manager who does a good job of picking small, fast-growing "green" companies. By Steven Goldberg, Contributing Columnist May 8, 2007 Investing in "green" stocks or funds can be treacherous. Most companies that specialize in solar or other renewable energy sources currently trade at nosebleed prices. "The solar stocks and the corn ethanol names have had big moves very much like the dot-com stocks did," cautions Jack Robinson, manager of Winslow Green Growth fund (symbol WGGFX), probably the best fund that specializes in this narrow sector. Consider two companies. SunPower Corp. (SPWR) traded in the mid $20s a year ago. On May 2, it closed at $57. Brokerage analysts covering the stock estimate that the company will earn $1.05 a share this year -- putting its price-earning ratio at a lofty 54. Pacific Ethanol (PEIX) is expected to earn 32 cents this year, giving it a P/E of 46. Investing in "story" stocks or funds is usually risky. Yes, I think that global warming and other environmental problems will lead to huge increases in spending to solve these problems. That, in turn, will fatten earnings in this industry. But what's a fair price to pay for those earnings? The collapse of the tech bubble taught investors to avoid stocks trading at extremely high P/Es -- no matter how good the story is. Moreover, big industrial companies and major energy firms aren't going to sit idly by while small companies make all the profits on alternative energy. General Electric (GE) is focused on alternative energy and related products and services. So are some of the oil companies. These companies, however, are so huge that only a tiny percentage of their profits will come from green products and services for many years to come. Advertisement Still want to invest some money in this area? I'd stick with Winslow. Robinson, 65, has been investing in green companies for 24 years and has been lead manager of the fund since he launched it in 1994. Since 2003, he's been assisted by co-manager Matthew Patsky, who also has long experience in the sector. Winslow Green Growth has an interesting approach. The managers first identify good environmentally proactive companies -- that is, those whose work helps the environment. Most of the remaining slots in the fund are filled by companies that work to not harm the environment. The fund has a good record. Over the past five years, it has returned an annualized 12%. That puts it in the top 14% among small-cap growth funds, according to Morningstar. But there's a catch: This is a risky fund. Winslow Green Growth invests most of its assets in tiny stocks, some of which aren't yet profitable. The average market value of its stocks (share price times number of shares outstanding) is just $596 million. That's awfully small. The average P/E of its holdings is 29 times 2007 anticipated earnings. And the fund is concentrated: It owns just 30 stocks. Consequently, the fund is more than three times as volatile as Standard & Poor's 500-stock index. Advertisement I still like the fund because of Robinson's long years investing successfully in this volatile area. He's a savvy investor. But this fund isn't a sensible core holding for anyone. Instead, use it in small doses. I'd limit your investment in Winslow to 10% or less of your stock money. Among Robinson's favorites is WFI Industries (WFI.TO), which trades on the Toronto exchange but is headquartered in Fort Wayne, Ind. The firm produces geothermal energy for housing developments. Robinson likes it despite its high price. The only analyst who covers it estimates the company will earn 67 cents this year, giving it a P/E of 32. Another favorite is Interface (IFSIA), which produces recycled carpet from used carpet, a prosaic business to be sure. It trades at 18 times anticipated 2007 earnings of 89 cents -- a bargain compared with most of Robinson's stocks. The bottom line: Winslow probably isn't the best small-growth fund there is because of its focus on such a narrow sector and because of its volatility. But it's a good one. If you like the idea of investing in a green fund, this is the one to pick. Just don't overdo it. Steven T. Goldberg is an investment adviser and freelance writer.