Catching a green wave

Fidelity's Clint Lawrence explains how some small cap companies may benefit from a heightened focus on environmental sustainability.

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The future direction of climate policy from Washington remains uncertain but many companies, large and small alike, are likely to continue emphasizing the issues of climate change and sustainability. That emphasis is partly a response to investor demands, says Fidelity portfolio manager Clint Lawrence.

“There’s a sustained interest in ESG (environmental, social, and governance) efforts from investors and corporate executives know it,” says Lawrence, who is at the helm of Fidelity® Small Cap Value Fund (FISVX).

Lawrence believes small-cap companies that fit the “green” theme and meet his standards for value and quality could be in position to benefit from multiple trends, including continued investor focus on ESG characteristics and a possible investor rotation back into value stocks over time.

He’s looking for growing green-theme companies run by management teams he thinks are smartly allocating capital, generating free cash flow, and could expand operating margins in the coming years.

As of September 30, the fund’s holdings included Regal Beloit (RBC), a manufacturer of low-emission electric motors for heating, ventilation, and air conditioning systems; Owens Corning (OC), a manufacturer and distributor of various environmentally friendly building products; and Nomad Foods (NOMD), a producer of frozen foods that has a new line of meatless products.

Lawrence has also added some new companies to the fund this year, among them Renewable Energy Group (REGI), North America’s largest producer of biodiesels, or renewable fuel made from vegetable oils, animal fats, or restaurant grease; and Clearway Energy (CWEN), a utility company focused on renewable-energy generation (including wind and solar), primarily in California.

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