Climate Change Conundrum? Consider These 3 ETFs

Climate change is a hot-button issue. There’s no denying that, but investors should put politics aside and draw their own conclusions.

The reality is that some climate change exchange-traded funds (ETFs) are appropriate for a broad swath of investors, while other market participants are destined to eschew these strategies. Still, data confirms climate change ETFs are being embraced by plenty of investors.

“On a global scale, as of December 2021, there were 860 climate funds that fit our definition, with collective assets under management of $408 billion worldwide,” writes Morningstar analyst Alyssa Stankiewicz. “Global assets have doubled in one year, boosted by continued fund flows and an accelerated pace of product development.”

But wait. There’s more.

“U.S. climate funds have experienced tremendous growth over the past three years, with assets in these funds passing the $30 billion mark for the first time in 2021,” adds Stankiewicz. “As shown below, this represents a 45% increase over the previous record in 2020 and is nearly 9 times the total seen five years ago.”

Investors looking to get in the climate change game can consider the following ETFs.

VanEck Future of Food ETF (YUMY)

The VanEck Future of Food ETF (YUMY) is new on the climate change ETF scene having debuted last November. For unknowing investors, there is a significant intersection between climate change and food production/consumption, underscoring the validity of YUMY’s investment thesis.

“Today, agriculture accounts for a fourth of greenhouse gas emissions, 80% of deforestation, 70% of water use, and 78% of ocean and freshwater pollution, according to Sustainalytics,” writes Morningstar analyst Leslie Norton. “A warming globe also produces more erratic weather and hurts biodiversity, leading to the emergence of disease, which in turn produces lower crop yields.”

The actively managed YUMY holds 50 stocks across eight sectors from 17 countries, indicating there’s strong global coverage. Plus, some high level investors see opportunity in the climate change/food theme.

“In 2021, venture capitalists funded 1,358 food tech deals worth $39.3 billion, double the previous year, according to PitchBook, a Morningstar company,” adds Norton. “Much of it went to online grocers, whose popularity skyrocketed during the pandemic. But there were also alternative-protein investments, including $500 million in Impossible Foods, which is expected to go public this year.”

SPDR S&P Kensho Clean Power ETF (CNRG)

The SPDR S&P Kensho Clean Power ETF (CNRG) is ideal for investors looking for a broad-based play on companies with varying degrees of leverage to the climate change battle. CNRG follows the S&P Kensho Clean Power Index, which employs artificial intelligence and quantitative weighting in its weighting scheme.

CNRG is also relevant for investors looking to tap into an important theme: Fighting climate change is very much a global endeavor and one that’s being amplified by Russia’s war against Ukraine.

“As Europe looks to cut its dependence on Russian fuel imports, the region is seeking alternative fossil fuel supplies and is willing to pay a premium, putting further pressure on prices,” notes IHS Markit. “In response, fuel suppliers are starting to divert supplies from growth markets such as Asia to Europe.”

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)

Among ETFs with climate change credentials, the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) is one of the legends. It’s been around more than 15 years and has $1.95 billion in assets under management.

QCLN tracks the NASDAQ® Clean Edge® Green Energy Index and holds 65 stocks across nine sectors. Tesla (TSLA) is the top holding in this climate change ETF at a weight of north of 9%. With the net-zero transition requiring massive long-term spending, QCLN could be an interesting idea for patient investors.

“We expect the transition to reach net-zero carbon emissions by 2050 to transform the macro environment,” according to BlackRock. “Will it hurt growth or be inflationary? Compared with the past, yes. But we believe the rear-view mirror is irrelevant for what’s ahead. Climate change is here. An orderly transition should boost growth and mitigate inflation versus no climate action or an eventual rush to decarbonize, in our view.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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