Climate Awareness Could Spur Interest in Select ETFs

More investors are becoming climate aware. In theory, that should benefit the ever-growing lineup of environmental, social, and governance (ESG) exchange traded funds.

However, not all ESG ETFs adequately address climate change, meaning investors need to be selective and do some homework when evaluating funds in this category. The Invesco ESG Nasdaq 100 ETF (QQMG) is an idea to consider because of its substantial exposure to growth stocks.

QQMG tracks the Nasdaq-100 ESG Index, the ESG counterpart to the Nasdaq-100 Index (NDX). As such, the Invesco fund is chock full of stocks that don’t just sport ESG credibility, but that have links to fighting change as well. That’s relevant because climate change is a top priority for many institutional investors.

“Climate change risks are dominating the agenda for pension funds having a major impact on scenario modeling and stress testing while also making the search for yield more complicated,” said Ortec Finance director of strategy & markets Willemijn Verdegaal in a recent report. “Technology is however available which can help pension funds balance the demands of rising investment complexity while implementing strategies to address the issue.”

Another reason why QQMG is relevant in this conversation is simplicity. Investors of all stripes are frustrated with complex climate-related investments, but QQMG, though pertinent, isn’t complex.

“The study found 90% expect to see a rise in investment complexity and the challenges facing their funds over the next two years with almost all funds (97%) interviewed in the US, UK, Australia, Canada, the Netherlands, Switzerland, and the Nordics saying technological advances are enabling them to invest in more sophisticated strategies,” added the Dutch research firm.

Those complexities enhance the allure of a product such as QQMG. That says that QQMG could be around for a while — an encouraging sign considering that the ETF is just 11 months old.

“That is translating into increased allocations to green bonds and climate-specific funds – 62% plan to do so in their own funds over the next two years with 27% intending to dramatically increase allocations to green bonds and 24% expecting to dramatically increase allocations to climate-specific funds,” concluded Ortec.

QQMG holds 96 stocks, 59.63% of which hail from the technology sector. Communication services and consumer cyclical stocks combine for over a quarter of the fund’s roster.

For more news, information, and strategy, visit the ETF Education Channel.

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.