Many have voiced concerns about the risks of climate change, but not a lot of people have aligned investments with concerns. With exchange traded funds, investors can gain targeted exposure to companies with a smaller impact on the global environment.
Most portfolios largely track broad stock markets and major indices, but those indices do not limit exposure to global warming concerns, reports Pauline Skypala for the Financial Times.
Specifically, major indices, like the MSCI World, Stoxx 600 and S&P 500, are overexposed to fossil fuel and petrol/diesel cars. Additionally, the indices are underexposed to renewable energy and electric cars, according to the 2° Investing Initiative.
“Indirectly, investors are betting on a scenario of 4°-5° warming,” Stan Dupre, founder and global director of 2° Investing Initiative, told the FT, adding that risks mount as the technologies of the future are being deployed outside investors’ portfolios.
Investors seeking to invest in companies that have a smaller impact on the global environment typically follow characteristics described under sound environmental, social and governance, or ESG, principles. Retail investors interested in ESG investments can also take a look at the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and the iShares MSCI ACWI Low Carbon Target ETF (NYSEArca: CRBN) for more socially responsible strategies.
LOWC and CRBN both target the MSCI ACWI Low Carbon Target Index, which tries to address carbon exposure by overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, compared to the broader market.
Additionally, investors can also play the rising growth in renewables through clean energy sector-related ETFs. For starters, the Guggenheim Solar ETF (NYSEArca: TAN) and the Market Vectors Solar Energy ETF (NYSEArca: KWT) track global solar photovoltaic panel producers. The First Trust Global Wind Energy Fund (NYSEArca: FAN) focuses on the wind industry. [Clean Energy ETFs: Wall Street Pledges To Raise Investments]
ETF investors can also track the broader green energy industry through the PowerShares WilderHill Clean Energy Portfolio (NYSEArca: PBW) and First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGS: QCLN), which both track broad exposure to U.S. clean energy companies, including solar photovoltaics, biofuels and advanced batteries.
Additionally, the Market Vectors Global Alternative Energy ETF (NYSEArca: GEX) and PowerShares Global Clean Energy Portfolio (NYSEArca: PBD) cover global clean energy companies. [Renewable Energy ETFs Look Like a Good Long-Term Play]
For more information on socially responsible investments, visit our socially responsible ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.