"Things are coming together," she says, "but this is a very early-stage sector - most of the companies in our universe are very small and not yet profitable, which means the shares tend to be volatile."However, there are reasons to be optimistic. Merrill Lynch, for example, launched the New Energy Technology investment trust in October 2000. Although the companies in which it began investing had nothing to do with the dotcom boom, the fund immediately got caught up in the bursting of the technology bubble. As a result, within three years, the fund had lost three-quarters of its value.Poppy Buxton, one of the two managers of Merrill Lynch's fund, says investors must be cautious. The figure is supposed to rise to 15 per cent by 2015.Yet while the economic and political climate is perfect for alternative energy suppliers, the sector has made only modest progress in terms of commercial success. Most of the large energy companies have divisions that are exploring areas such as wind and solar power - often very tentatively - but there are very few household names in this sector.For investors interested in alternative energy, this is a dilemma.
The case for the sector is strong in terms of potential profit. And many investors would rather put their money into "ethical" producers of clean energy than dirty polluting oil companies. Yet identifying possible investments is difficult - and the risk of putting money into unproven technologies is always high.Certainly, since 2000, investors have struggled to make money from green companies. The Environmental Technology 50 Index, a benchmark for the sector, shows shares in green companies have underperformed the global stock market as a whole by about 70 per cent since the turn of the century.Given that equities have been such disappointing assets, this underperformance hardly inspires confidence in companies with an environmental bent.Ben Yearsley, an investment analyst at independent financial adviser Hargreaves Lansdown, warns that for investors, alternative energy can be a similar gamble to the high-risk end of the biotechnology sector, where the theoretical story is more attractive than reality."This is a fascinating area that clearly has huge potential, but the trouble is that it's all very idealistic," he says. As a signatory to the Kyoto Protocol, for example, Britain is committed to cutting emissions of greenhouse gases.As part of plans to hit its Kyoto targets, the Government has said that by 2010 it wants to see 10 per cent of the country's energy needs generated by alternative means. Even if consumers and business don't have plans to cut back on oil voluntarily, in much of the developed world legislators are committed to forcing them to do so.
As the world looks for ways to reduce its dependency on oil, gas and coal, those industries that are able to offer other ways to produce energy should be in a position to reap much richer rewards than even the short-term profits that are currently being earned by the oil companies. It seems like a no-brainer. That has encouraged investors to put their money with Schroders instead of with its rivals.The shares now trade at more than 20 times this year's predicted earnings, which looks steep, but the market value of the company is inflated by its surplus capital. Political uncertainty and setbacks at various refineries around the world may be behind this month's increases to a record-breaking $67 (£37) a barrel - analysts think the price could even hit $70 before 2006 - but in the long run, as oil supplies dwindle, there is little prospect of sustained price falls.Enter alternative sources of energy - from wind power to biomass. Buy.s.foley independent.co.uk. There's a simple explanation for the seemingly ever-upwards march of the oil price: while demand for black gold keeps rising, supply is failing to keep pace. Investors will not know for sure whether the valuation is justified until the money has been spent, but with Dobson's track record, the chances are that Schroders can and will justify its share price.
