Climate Change
By Alexander Davies | 04 Aug, 2008
The climate change debate continues to rage. Opinion seems divided on whether it exists, and if it does, on how it can best be tackled. I am not a scientist and I cannot tell you if the earth will be any warmer (or cooler) next year, or if mankind is responsible for any change in climate. What I can tell you is that governments around the world are pouring billions of pounds into this area; this is bound to throw up investment opportunities.
Over the last year a number of funds have launched that are looking to capitalise on such opportunities. Their mandates are varied and each fund is taking a separate approach. If you’re thinking of investing in this area then it is worth examining where each fund will be investing.
One recently launched fund, Allianz RCM Global EcoTrends, invests predominantly in environmental technology. Allianz believe that as governments, businesses and the public look to tackle environmental problems this will drive the demand for new technologies. Alternative energy is clearly a key issue, but Allianz also invest in other areas, like companies involved with pollution control and clean water.
As well as alternative energy the F&C Global Climate Opportunities Fund looks at themes such as forestry & agriculture, and advanced materials. F&C believe companies helping people to adapt to a changing environment offer the potential for reward and their portfolio will reflect this.
The number of investment opportunities in this area is growing. HSBC have created the Global Climate Change Benchmark Index of companies associated with this area and their GIF Climate Change Fund looks to invest in what they believe are the best 50-70 stocks in this index. As the number of companies associated with climate change grows so does the amount of investment opportunities and HSBC are looking to capitalise.
As you might expect some climate change funds focus on technology-orientated companies, as it is these companies that can provide solutions for a changing world. But other climate change funds have a broader remit. Schroder Global Climate Change, for example, applies the philosophy that all industries and sectors will be affected by climate change and the managers look to invest in companies benefiting, or likely to benefit, from efforts to mitigate or adapt to climate change. Their portfolio is wide ranging and includes companies like Toyota, which, as a car manufacturer, may not normally be associated with providing solutions to climate change. Their Prius, however, is a leader in the hybrid car market.
Virgin Climate Change is another fund with a broader remit. This Pan-European fund looks to invest predominantly in companies with a lighter ‘environmental footprint’ than others in the sector. The rationale is that companies with a lighter footprint could out perform those with a heavier footprint as they actively look to manage the risks associated with climate change. This approach means the managers can potentially invest in any sector, which could make the fund more balanced than others investing in this area.
Over the long term we believe this sector shows potential, but as with any specialist investment volatility is likely to be high and these should be considered higher risk investments. You can read more about the investment rationale and read reviews of all the new funds that have launched in this area in our latest research note, ‘Climate Change – A Chance to Profit from a Changing World?'
Key Features of the Allianz RCM Global Eco Trends Fund
Key Features of the F&C Global Climate Opportunities Fund
Key Features of the HSBC GIF Climate Change Fund
