Climate change and low carbon-based economic initiatives are evolving at a rapid rate, but some seasoned exchange traded funds are equipped to thrive as the pace accelerates.
Consider the Invesco WilderHill Clean Energy ETF (PBW). The $955 million Invesco ETF is more than 17 years old, but its breadth indicates that it’s well-equipped to help investors thrive as the low-carbon investing and political landscapes grow.
“The transition to a low-carbon economy (while undoubtedly complex) is well underway, with a common understanding: tomorrow’s economy will look different than it does today. Traditional approaches to ESG investing often focus on achieving a lower carbon footprint relative to broad indices that mirror today’s economy, not tomorrow’s. This can lead to excluding entire sectors like energy based on a narrow view of current emissions without considering the role that they play in the broader economy,” according to BlackRock research.
PBW, which tracks the WilderHill Clean Energy Index, provides an efficient avenue for investors looking to tap into a simple but important theme: Some sectors are, at least for the time being, superior avenues for low-carbon exposure than others.
“Aligning with the increasingly complex path of decarbonization requires a granular, complete view of current emissions,” added BlackRock. “Divesting the sectors that support those consumption categories would seemingly lower a portfolio’s carbon footprint – without addressing the bigger.”
More than 62% of PBW’s 80 components hail from the industrial and technology sectors. That implies some level of concentration, but investors should remember that PBW isn’t purporting to be a broad market fund. More importantly, significant exposure to those two sectors is relevant in the low-carbon investing conversation.
PBW also devotes 18.61% of its weight to consumer discretionary stocks. That’s another practical sector exposure for a low-carbon ETF for multiple reasons. Notably, consumer cyclical is where electric vehicle makers reside, and PBW reflects as much with allocations to Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), and many more EV manufacturers.
Bottom line: PBW has arguably underappreciated avenues for growth, and it’s worth noting that those growth levers are credible with compelling long-term outlooks.
“The energy crisis also has the potential to act as a catalyst for green innovation and the development of more secure and affordable sources of energy. Our analysis reveals areas of the economy that may benefit the most from green innovation, guiding our pursuit of firms developing new technologies,” concluded BlackRock.
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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.
