Six months on from the UN Climate Change conference in Copenhagen, climate change-related shares look likely to remain at depressed levels, managers say, at least in the short term.
They believe shares in the sector have been more adversely impacted by concerns over the global economic recovery than the rest of the market.
The run up to the December conference saw such high expectations that the final cobbled-together accord on agreement on CO2 reductions failed to impress. The lacklustre outcome, combined with ongoing fears about the global economy, has led to a tough environment for the sector.
Simon Webber, the manager of the Schroder Global Climate Change fund, says Copenhagen failed in its key aim of pushing countries to adopt a more global approach.
"Copenhagen has led to a lack of global co-ordination which has left countries to enact their own programmes for reducing CO2," he says.
"This has led to a much more complex and piecemeal policy environment."
Ian Simm, CEO of Impax Asset Management says the result of Copenhagen has been mixed.
"On the one hand the Australians have temporarily walked away from their targets, but Europe is now having discussions about setting tougher targets and the US is still trying push to legislation through Congress," he says.
In addition to the lukewarm response to the summit, environmental stocks, particularly renewables, have been hit by negative sentiment.
Nicola Donnelly, the manager of the Wheb Sustainability fund, says renewable stocks have really suffered during the first half of the year.
"Renewables are on their knees. Year to date, some companies have sold off up to 30%," she says.
"The whole economic downturn dried up financing and led to excess supply. Added to that are concerns over government financing in an area which is very much policy driven.
"The most recent jitter is over the problems in Spain and Italy, which account for some of the biggest demand for solar and wind power."
However, Simm says some sectors have proved more resistant than others.
"Energy efficiency has been a stronger performer. There has been a lot of fiscal stimulus investment in this area," he says.
Even within those sectors that have taken a hit, the drop in prices has created a range of investment opportunities, the managers argue.
Webber has been increasing his fund's exposure to renewable energy since February on expectation of price rises.
"We perhaps moved back into this area a bit too early, but the cost of supplying the electricity, of the equipment, and of financing is all getting cheaper," he says.
Meanwhile, Pieter Furnée, the head of DWS Investments for the UK, Netherlands and the Nordics, is positive on the outlook for green energy stocks.
"The reason we are more optimistic about renewable energy is because it is becoming more competitive; it is moving to a point where it can compete without subsidies," he says.
"The renewable energy sector is a late cyclical, so you need an economic recovery for these stocks to perform, but we are confident this will come in time."
Furnée, whose group runs the DWS Climate Change and DWS New Resources funds, says the sector will also begin to attract more generalist investors, providing another boost to prices.
"Solar power is expected to reach grid parity in some countries by the end of the year. Once this happens, the sector will be driven more by market forces as broader selection of investors start to look at these stocks," he says.
There is also a view the BP oil spill in the Gulf of Mexico could increase support for the sector in the longer term.
"It certainly reinforces the argument about moving more to a clean energy economy," Simm says.
