Invesco launched a global climate ETF with significant funding from Finnish pension Insurer Varma.
The Invesco MSCI Global Climate 500 ETF (KLMT) began trading on the NYSE on June 27 with a $1.6 billion initial investment from Varma. The substantial funding from Varma demonstrates a commitment to KLMT, ensuring its initial liquidity and market credibility.
KLMT includes companies that have a track record of reducing greenhouse gas and carbon emissions. The fund offers a precise strategy for investors who are prioritizing the climate transition, according to Rene Reyna, head of thematic ETF strategy at Invesco.
The new Invesco climate ETF filled a gap in Varma’s portfolio by providing targeted exposure to climate-focused investments, thereby advancing Varma’s environmental policy goals, particularly those related to climate change mitigation and adaptation, Hanna Kaskela, senior vice president of sustainability at Varma Mutual Pension Insurance Company, said in a statement to VettaFi.
The Finnish pension insurer used a U.S.-domiciled ETF to enhance diversification within its portfolio, particularly with a focus on climate change, she said. Varma invests globally across different asset classes, from direct real estate to hedge funds and listed equities.
U.S. ETFs offer higher liquidity and access to a broader range of sectors compared to European ETFs. This can improve overall portfolio performance and can also provide exposure to niche markets that may not be available in European ETFs, Kaskela added.
See more: “Is Now the Right Time to Add Exposure to Commodities?”
Under the Hood of Invesco’s New Climate ETF
KLMT could be beneficial to investors looking for a lower-fee climate-transition ETF that tracks an MSCI benchmark, according to Reyna.
The Invesco ETF offers a broader, marketwide strategy. Therefore, the fund may pair well with other clean energy exposures like water conservation and solar energy that have a more focused approach, she added.
KLMT’s underlying index uses optimization to aim for lower tracking error compared to the MSCI ACWI. The fund also uses a more streamlined approach compared to the benchmark, owning 500 names instead of over 2,000.
The KLMT index also focuses on Scope 1 + 2 emissions only, prioritizing the quality of current data versus the completeness of emissions along the entire supply chain of each company (which can increase complexity), according to Reyna.
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