Many advisors and investors already know that environmental, social, and governance funds, including exchange traded funds, are hauling in assets at an enviable pace.
What they may not know is that the same applies to climate funds, an emerging subset of the broader ESG universe. Rising investor enthusiasm for climate funds could be beneficial to products such as the ALPS Clean Energy ETF (ACES).
While ACES is a clean energy ETF, investors new to this fund segment should know that clean energy and tech fall under the auspices of the broader climate fund space. Importantly, ACES components, in some form or fashion, are actively engaged in the fight against climate change.
“Climate change poses the biggest long-term threat of our time, impacting not only how we live but also how we invest. By some estimates, the global economy could shrink by 18% in the next 30 years if no action is taken to mitigate climate change. Investors’ portfolios are at risk from climate change,” according to Morningstar research. “Some investments will be disadvantaged in the transition to net zero, while others will find themselves vulnerable to physical risks from extreme events caused by climate change.”
While the path to achieving various climate-related and net-zero goals isn’t linear, the fact is that it’s going to require massive amounts of capital to be deployed by both corporations and governments. That highlights long-term potential for a fund such as ACES because its member firms are likely to be on the receiving end of some of those expenditures.
“The route to net zero is highly uncertain, but according to the International Energy Agency, achieving net-zero carbon emissions by 2050 requires huge declines in the use of coal, oil, and gas, and no investment in new oil & gas fields,” adds Morningstar. “Also, as much as USD 173 trillion of investment capital needs to be directed into climate solutions.”
One way of looking at ACES is that, for patient investors, the ALPS ETF is at the right place at the right time.
“The introduction of the Sustainable Finance Disclosure Regulation in March ratcheted up the demand for innovative investment strategies incorporating climate considerations. Recent improvements in climate-related data empower asset managers to better understand and interpret the climate profile of companies and countries and, as a result, design strategies that meet clients’ needs and preferences,” according to Morningstar.
Other renewable energy ETFs include the First Trust Global Wind Energy ETF (FAN) and the SPDR Kensho Clean Power ETF (CNRG).
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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.
