At this juncture, it’s widely known that adequately addressing climate change and meeting various decarbonization goals is going to take capital. Lots of it.
While a variety of exchange traded funds purport to have exposure to those themes, not all are adequately levered to spending trends. One ETF that taps into the theme of elevated climate transition spending is the Goldman Sachs Future Planet Equity ETF (GSFP).
While renewable energy stocks are enduring their share of struggles, GSFP could be a solid idea for patient investors seeking an avenue for capitalizing on exponential increases in climate and decarbonization spending.
“The amount of capital committed net zero targets is accelerating rapidly and is indicative of where we’re going at a country, corporate and consumer level. How does this impact capital? Those capital allocators being asked to undertake massive infrastructure projects with long duration are going to need to be incentivized with attractive and more importantly, durable returns,” according to research by Goldman Sachs Asset Management (GSAM).
Indeed, the spending outlook for green infrastructure and the like is mammoth, particularly when examining multi-decade forecasts. However, investors shouldn’t just pick any old ETF simply because the climate or sustainability is referenced in the fund’s name.
Flexibility is critical, but many passive ETFs in this category lack flexibility. On the other hand, GSFP is actively managed, meaning it can move more nimbly than an index-based product to address the rapidly evolving clean energy investment landscape. That includes perhaps adding exposure to so-called “greenablers.”
“We believe the building blocks needed to execute on UN Sustainable Development Goals (SDGs) alone will require investment with long lead times (2-12 years) to avoid bottlenecks and delays. While there has been much focus on Green Capex for final products such as residential solar expansion, offshore wind farms, and electric vehicles — there has only recently begun to be a focus on the building blocks needed to ensure execution to achieve key SDG,” added GSAM.
GSFP’s sector exposures have an infrastructure vibe to them. While many climate-driven ETFs are heavily allocated to technology and other stocks, GSFP devotes almost 55% of its weight to the industrials and materials sectors. That puts the ETF at the corner of what could be a long-term gold rush for companies with decarbonization leverage.
“The need for Green Capex is immense – approximately $6 trillion annually this decade, up from $3.2 trillion per year in 2016-20 according to Goldman Sachs Research,” concluded GSAM.
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