Despite conjecture to the contrary, broad swaths of advisors and retail investors remain enthusiastic about environmental, social, and governance (ESG) investing. And more are taking closer looks at climate-focused and sustainability-driven strategies.
Exchange traded funds such as the KraneShares Global Carbon Offset Strategy ETF (KSET) merit a place in the conversation. KSET, which is one of this year’s best-performing commodities ETFs, provides exposure to carbon offset futures contracts. The fund, which turns two years old in April, can increase exposure to newer carbon offset markets as those markets achieve scale, according to KraneShares.
An interesting, relevant perk offered by KSET is that, as detailed above, it’s not an equities-based product. That could signal the ETF offers important diversification benefits within the confines of portfolios that are heavily allocated to stocks and bonds.
KSET Import for ESG-Inclined Investors
One of the stumbling blocks to ESG investment adoption is advisors’ and investors’ concern that such strategies mean leaving returns in the name of “doing the right thing.” To a large extent, those concerns have been allayed in the equity space.
Regarding KSET, the fund could prove to be a credible alternative to old-guard commodities strategies that lack carbon offset exposure and are often vulnerable to the whims of gold and oil prices. That potential is important because data suggest more investors want access to sustainable strategies.
“Investors cited that their growing interest in sustainable investing is due to factors including new climate science findings (53%) and the financial performance of sustainable investments (52%),” according to Morgan Stanley research. “A majority of investors also believe that companies should address environmental and social issues.”
Another factor that could bode well for KSET is the point that many ESG-enthused investors remain focused on the “E” and want their portfolios to reflect a proactive stance on improving climate issues.
“When asked to pick their top sustainable investing theme, investors prioritized climate action with 15% ranking it first, followed by healthcare (13%), water solutions (11%), and circular economy (11%),” added Morgan Stanley.
To date, many retail investors have considered equity-based funds and, to a lesser extent, bonds as the primary avenues for deploying climate awareness in their portfolios. With some improved education by advisors, ETFs such as KSET could gain appeal among more market participants.
“Investors may benefit from more guidance and support from investment professionals. 52% say they have limited knowledge about how to start investing sustainably and 43% say they lack financial advice,” concluded Morgan Stanley.
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