Should exchange traded fund (ETF) investors consider global warming an economic issue? The economic impact of global warming could only be decades away, with increased public awareness and a newly settled Democratic congress in Washington, some sectors may be exposed to environmental regulation. Jonathon Bernstein of ETF Zone has a key term "carbon-constrained economy" where the constraint (regulation) will impact many sectors such as those listed below. These sectors have had a nice run, benefiting from a regulatory-friendly government, however, regulation is only part of their success.
- Oil and Gas: One of several ETFs in this sector is the Energy Select Sector SPDR (XLE), which have reaped the rewards of the global commodity boom that has tripled the cost of oil. XLE is up 27% for 3-years.
- Electric Power: A decline in bond yields has moved investors to reliable dividend paying utilities. Utilities Select Sector SPDR (XLU) and other utility ETFs have done well in a broad market characterized by stagnation. Over the past 3-years, XLU is up 19%.
- Metals and Mining: Raw materials have risen along with the commodity boom which has sharply increased the price of metal. Metals and Mining SPDR (XME) has India and China’s demand for raw materials to thank. XME is a new ETF, but it is up 15% over the past 6-months.
Many of the factors that have kept these sectors aloft are changing or may do so soon. Risks for environmental regulation are becoming more obvious, although Wall Street has yet to reward companies that think green, it may happen sooner than we think.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.