Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Worried about climate change? These ETFs are COP26-friendly
The Conference of Parties to the United Nations Framework Convention on Climate Change (UNFCCC), or “COP26” as it’s commonly known, is a fortnight-long series of conferences between global leaders to discuss their climate commitments, and ways to combat climate change. There are 197 countries that will attend and review their progress on climate action carried out since the Paris Agreement.
The UN has regularly convened countries around the world to discuss climate change. The current meeting in Glasgow is the 26th meeting, with the United Kingdom the host.
COP26 will force countries to make ambitious pledges in the hope of keeping climate change to 1.5 degrees “above pre-industrial levels.” According to the UN, the pledges received so far aren’t even close to the level of ambition required to keep climate change to this 1.5 degrees. Morningstar says: “scientists have been able to calculate the carbon-burning limit consistent with the 1.5°C temperature rise limit. This budget forms the basis of a global decarbonisation timetable: Net Zero by 2050.”
Some climate experts suggest that to keep the globe from tipping over the point of no return, humanity must be carbon-neutral within 28 years. According to the UN’s Inter-governmental Panel on Climate Change (IPCC), temperatures have already risen by 0.95-1.25 degrees above pre-industrial levels. With global warming occurring faster than first thought, according to the UN/IPCC, the COP26 conference is the “last best chance to save the world.”
Morningstar has released a white paper that discusses how asset managers fit into the climate change equation and what they can do to contribute to the reduction of carbon dioxide emissions; in particular, what committing to “net zero” means and how they can contribute to the decarbonising of the world. The paper also examines fund managers that are using various tools and platforms needed to have a real impact.
Asset managers will play a critical role in decarbonising the economy. Some of the bigger players have already put in place an action plan detailing interim targets required to reduce carbon dioxide emissions by 50% by 2030. And these targets have helped trigger a global transition away from carbon-emitting stocks by institutional and retail investors. Portfolios are under pressure to move away from carbon-intensive stocks, and to capture the promised upside potential by “going green,” such as the renewable energy sector.
Deal activity levels surrounding industries such as the battery minerals, green-hydrogen and technology required for renewable energy have risen rapidly, giving investors the opportunity to reap huge benefits.
Here are three newly launched ETFs that give targeted exposure to a decarbonized world.
BetaShares Climate Change Innovation ETF (ASX: ERTH): gives investors exposure to a portfolio of 100 global companies that are leaders in tackling environmental challenges, especially focusing on decarbonization.
The index on which ERTH is based returned 37% annually over three years to end-February 2021. The fund is only three months old, so data is restricted. The portfolio selects stocks that derive at least half of their business revenue from “green revenue,” that is mooted to reduce or avoid carbon dioxide emissions. The top stock in the portfolio is Tesla (NASDAQ: TSLA). It’s the perfect portfolio for those looking to avoid carbon dioxide emissions.
VanEck Vectors Global Clean Energy ETF (ASX: CLNE): CLNE is similar to Betashares’ ERTH, but is more of a concentrated portfolio, with exposure to 30 of the largest companies involved in clean energy production, semiconductor production, electrical equipment and utilities manufacturing. It tracks the S&P Global Clean Energy Index. Relevant business activities include, but are not limited to: biofuel and biomass energy production , technology and equipment, ethanol and fuel alcohol production, fuel cells technology and equipment, geothermal energy production, hydro-electricity production, turbines and other equipment, solar energy production, photo voltaic cells & equipment, wind energy production, turbines and other equipment.
ETFS Hydrogen ETF (ASX:HGEN): This fund is ETF Securities’ answer to the “green hydrogen” boom. The fund invests in companies that are linked to the hydrogen economy; hydrogen is being touted by many as Australia’s answer to carbon dioxide emissions. Viewed as integral to clean energy, hydrogen is seen as being potentially able to disrupt fossil fuel production. The portfolio will have 30 pure-play hydrogen stocks – from developed markets, plus Taiwan and South Korea – that produce hydrogen fuel cells and their components, hydrogen refuelling and storage stations, and companies that generate hydrogen or build electrolysers.
HGEN tracks the performance of the Solactive Global Hydrogen ESG Index, and uses a full-replication strategy to do so, meaning that it holds shares of every company in its index. Pure-play hydrogen companies, which are identified using natural language processing, receive more weight in the fund and have their weights capped at 10%. Non-pure play hydrogen companies receive less weight, and have their weights capped at 4% each.
ETFs says: “Sometimes described as the ‘Swiss army knife’ of decarbonisation, hydrogen contains three times more energy on a weight-for-weight basis than petrol, while producing no carbon dioxide emissions. The issuer says hydrogen can be used to replace fossil fuels like coal in areas that have proved hard to “green up” in the past.”
