Scores of exchange traded funds claim to provide platforms for market participants to tap into the climate change investment theme.
While choice for investors is usually a good thing, given the pace of expansion in this particular ETF segment, it’s right for advisors and investors to evaluate exactly how much climate change exposure a particular fund is delivering.
The Goldman Sachs Future Planet Equity ETF (GSFP) is an example of an ETF that allays those concerns. While GSFP doesn’t overtly mention “climate change” in its name, the Goldman Sachs ETF is nonetheless relevant in this conversation.
“As climate-focused funds continue to grow in popularity, one question keeps investors up at night: How much of my portfolio is actually addressing climate change?” wrote Morningstar analyst Alyssa Stankiewicz. “In a recent study, we found that climate funds in the U.S., which we define as those with a branded, climate-focused investment mandate, offer more bang for the buck in terms of addressing climate change. Leading the pack in delivering exposure to climate action are clean energy/tech funds, followed by climate solutions funds.”
Part of the climate change allure with GSFP is derived from the fund’s focus on companies that are purveyors of decarbonization services and technology. Various corporate and government decarbonization goals are viewed as central to broader climate change initiatives.
Second, in a fund segment littered with index-based funds, GSFP stands out because it’s actively managed. Active managers can more nimbly navigate the climate change investment landscape and potentially unearth related, compelling opportunities before those shares are gobbled by index-based ETFs. Those are points to ponder because investor interest in climate change funds remains high.
“In the U.S., interest in climate funds has shot up. In 2021, investors poured nearly $13 billion into these funds—a 43% increase over 2020′s record and 18 times greater than the total seen five years ago,” added Stankiewicz. “Increasingly, regulators, too, are asking public companies to report on climate-related risks. Clean energy/tech funds, which target companies driving the renewable energy transition, remain the most popular, but other categories are gaining ground.”
Overall, GSFP bridges the gap between providing exposure to clean technology firms and those with climate action credibility — a combination that could be a long-term positive for investors.
“Overall, as expected, our study found that climate funds in the U.S. have higher exposure to Climate Action than their Morningstar Category peers and higher exposure to Climate Action than to other impact themes. Eight of the top 10 climate funds with exposure to Climate Action fall into our clean energy/tech category,” concluded Stankiewicz.
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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.