Sure signs of an alt-fuels investment bubble by Adam Lashinsky @FortuneMagazine January 4, 2008, 1:29 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons I’ve written a handful of times in the past year about signs of a green backlash and a bubble in alternative-energy investments. I’m not one of those global-warming deniers, though. Nor do I think reducing carbon emissions is a waste of time and money. (After all, I spent oodles of time co-writing generally favorable articles about ethanol in 2006 and Al Gore in 2007.) I just know a good old-fashioned investment bubble when I see it. A smart idea first attracts true believers, then clever opportunists, then momentum investors and finally the rubes who invest their money at the top of the cycle. Bubbles are productive, by the way, as they usually lead to positive change. You just don’t want to be the investor left holding the bag. I gained more confidence in my thesis this week when I learned that Firsthand Funds, a San Jose, Calif.-based mutual fund company, has started a new Alternative Energy Fund (ALTEX). Firsthand is a near-perfect bubble indicator. It’s run by a smart guy named Kevin Landis who has been particularly adept over the years at starting new funds and attracting new investors to them. Three important disclosures. First, Kevin’s a nice guy who, back when I started covering stocks in Silicon Valley, was always generous to me with his time — though media exposure, of course, is central to the mutual-fund game of attracting more assets and collecting more fees. Second, Kevin’s performance, especially at his only big fund, the Technology Value Fund (TVFQX), hasn’t been half bad. Its 15.3 percent annualized return since its inception in 1994 has trounced the 10.8 percent performance in the same time frame of the Nasdaq composite index. As you can see here, its 1-, 3-, and 5-year performance has been great too. Only Tech Value’s 10-year numbers stink. Which leads to my third important disclosure: I bought into the fund in 2000, when its net asset value per share was twice what it is now. I’ve hung onto the investment as a reminder of the perils of buying a hot sector fund. The Firsthand Funds lesson, though, isn’t so much about Tech Value, which at $300-some million in assets is a shell of its formerly hyped self. It’s in the other funds Landis has started along the way. Importantly, it’s also about when he started them. The Global Technology Fund, for example, launched in Sept. 2000. Ooops. It has had good years and bad, but it’s down overall and has just $13 million in it. Similarly, the e-Commerce Fund looks great if you’ve owned it for five years. If you bought when it began in Sept. 1999? Not so much. Which gets us back to the new alternative energy fund. Landis started it in October. This week he disclosed its top holdings include the likes of Applied Materials (AMAT), Corning (GLW) and Suntech Power (STP). (Corning is a top holding in two other Firsthand Funds, which is how you know Landis really likes it.) What’s funny about all this is that Landis always billed himself as an expert in information technology, which is why investors should trust his, ahem, first-hand knowledge. In this regard he’s no different than the scores of other Silicon Valley professionals who are busy re-branding themselves as alternative-energy experts. (Landis has help in this fund, by the way, who presumably have first-hand knowledge of their own. They are the noted investors Audubon, Defenders of Wildlife, National Wildlife Federation, the Sierra Club and World Resources Institute.) Will the new fund do well? Who knows. Is this a time when everyone and their sister are investing in alternative energy? Sure feels like it. Has Kevin Landis called a top in a market again by starting a new fund? That’s what potential investors will need to judge for themselves.