Introduction to BlackRock’s $426 million Climate Action ETFHi there, welcome to “The Investing Iguana”, the YouTube channel where I, Iggy, help you navigate the jungle of personal finance, investing, and retirement planning. In today’s video, we’re going to talk about a hot topic in the world of sustainable investing: BlackRock’s $426 million Climate Action ETF. This is a new fund that was launched on the Singapore Exchange just a few days ago, and it claims to offer investors access to the best-in-class companies in Asia Pacific that are committed to reducing carbon emissions. Sounds pretty cool, right? But what exactly is this fund, how does it work, and is it worth investing in? That’s what we’re going to find out in this video, so buckle up and get ready for a wild ride! Before we dive into the details, let me give you a quick overview of what an ETF is. ETF stands for exchange-traded fund, which is a type of investment that tracks the performance of a basket of stocks, bonds, commodities, or other assets. An ETF can be traded on a stock exchange like any other stock, and it usually has a lower cost and higher liquidity than buying individual securities. ETFs are popular among investors who want to diversify their portfolio, gain exposure to a specific market or sector, or follow a certain investment strategy. ETFs for Every Investor: A Guide to the Different TypesOne of the most common types of ETFs are index ETFs, which track the performance of a market index, such as the S&P 500 or the MSCI World. An index is a collection of securities that represent a certain segment of the market, and it is used as a benchmark to measure the performance of other investments. For example, if you want to invest in the US stock market, you can buy an ETF that tracks the S&P 500 index, which consists of 500 large-cap US companies across various sectors. By doing so, you can get exposure to the entire US market with just one purchase. However, not all ETFs are created equal. Some ETFs are more focused on specific themes or objectives than others. For example, some ETFs aim to provide higher returns than the market by using active management or smart beta strategies. Others aim to align their investments with certain environmental, social, or governance (ESG) criteria, such as reducing carbon emissions or promoting gender diversity. These are known as sustainable or ESG ETFs, and they are becoming increasingly popular among investors who care about the impact of their investments on society and the planet. BlackRock Launches iShares MSCI Climate Action ETF Series One of the leading providers of sustainable ETFs is BlackRock, the world’s largest asset manager with over $9 trillion in assets under management. BlackRock has been at the forefront of promoting sustainable investing as a way to achieve better long-term returns and address global challenges such as climate change and social inequality. In fact, BlackRock’s CEO Larry Fink has been sending annual letters to CEOs around the world since 2018, urging them to adopt a more sustainable and stakeholder-oriented approach to business. One of BlackRock’s initiatives to support sustainable investing is the iShares MSCI Climate Action ETF series, which was launched in 2021 in collaboration with MSCI, a leading provider of ESG indexes and data. The iShares MSCI Climate Action ETF series consists of three funds that track different regional MSCI Climate Action Indexes: one for the US market (ticker: CLMA), one for the Japan market (ticker: CLMJ), and one for the Asia Pacific ex-Japan market (ticker: CLMA). These indexes are designed to provide exposure to companies that are well-positioned for the low-carbon transition while reducing exposure to companies that are exposed to climate risks or have high carbon emissions. The iShares MSCI Asia ex-Japan Climate Action ETF (CLMA) is the latest addition to this series, and it was listed on the Singapore Exchange on Sept 14 with support from Prudential and a consortium of investors including Temasek and Singlife. At US$426 million ($579.45 million), CLMA is the largest equity ETF launch in Singapore to-date, and it offers investors convenient access to best-in-class companies across Asia Pacific ex-Japan that are committed to reducing carbon emissions. How CLMA Selects Companies for Its Climate Action Index But how does CLMA select these companies? Well, according to BlackRock, CLMA is built to track the MSCI Asia ex-Japan Climate Action Index, which provides exposure to the top 50% of companies in each Global Industry Classification Standard (GICS) sector, based on factors including approved science-based targets, management of climate risks and green business revenue. Science-based targets are emissions reduction goals that are aligned with the Paris Agreement, which aims to limit global warming to well below 2°C above pre-industrial levels by 2100. Management of climate risks refers to how well companies assess and disclose their exposure to physical and transition risks arising from climate change. Green business revenue refers to how much revenue companies generate from products or services that have a positive environmental impact. By using these criteria, CLMA aims to capture the opportunities and mitigate the risks associated with the low-carbon transition. For investors with low-carbon transition objectives, CLMA opens access to pioneering companies at the forefront of the low-carbon transition, says BlackRock. CLMA's Performance So Far: A Mixed Bag But how has CLMA performed so far? Well, since its launch on Sept 14, CLMA has gained about 2.5% as of Sept 28, slightly outperforming the MSCI AC Asia ex-Japan Index, which is a broader index that covers all the companies in the region. However, if we look at the historical performance of the MSCI Asia ex-Japan Climate Action Index, which CLMA tracks, we can see that it has been quite volatile in the past few years. According to an Aug 31 index factsheet, the index’s net returns were -6.26% over the prior month and 3.16% over three months. Using data prior to the October 2022 launch, the index would have returned -20.47% in 2022 and -1.73% in 2021, following returns of 22.15% in 2020 and 18.90% in 2019. So what explains this volatility? Well, one possible reason is that CLMA is heavily concentrated in a few sectors and countries that are more sensitive to market fluctuations and policy changes. For example, as of Aug 31, CLMA had about 40% of its portfolio in information technology stocks, followed by about 20% in consumer discretionary stocks and about 15% in financials stocks. These sectors tend to be more cyclical and growth-oriented, meaning that they perform well when the economy is booming but suffer when the economy is slowing down or facing uncertainties. Moreover, CLMA had about 50% of its portfolio in China stocks, followed by about 20% in Taiwan stocks and about 10% in India stocks. These countries have been facing various challenges such as regulatory crackdowns, geopolitical tensions, and Covid-19 outbreaks, which have affected their stock market performance. Another possible reason for CLMA’s volatility is that it is exposed to some companies that have high carbon emissions or face high climate risks, despite its ESG criteria. For example, one of CLMA’s top holdings as of Aug 31 was Reliance Industries, an Indian conglomerate that operates in various sectors such as oil and gas, petrochemicals, telecommunications, and retail. Reliance Industries is one of the largest emitters of greenhouse gases in India, and it has been criticized by environmental groups for its involvement in coal mining and coal-fired power plants. Although Reliance Industries has announced plans to become net-zero by 2035 and invest in renewable energy and green hydrogen, some analysts have questioned the feasibility and credibility of its ambitions. Investing in CLMA ETF: What Investors Need to Know So what does this mean for investors who are interested in CLMA? Well, as with any investment, there are pros and cons to consider before making a decision. On the one hand, CLMA offers a unique opportunity to invest in some of the most innovative and sustainable companies in Asia Pacific ex-Japan, which could benefit from the global shift to a low-carbon economy. On the other hand, CLMA also comes with higher risks and costs than other ETFs that track broader or more diversified indexes. For example, CLMA has an annual management fee of 0.18%, which is higher than some other ETFs that track similar regions or themes. Moreover, CLMA may face challenges such as market volatility, regulatory uncertainty, climate-related litigation, or greenwashing, which could affect its performance or reputation.
Therefore, before investing in CLMA or any other ETF, it is important to do your own research, understand your risk appetite and investment goals, and consult a professional financial advisor if necessary. Remember that past performance is not indicative of future results, and that investing involves risks that you may lose some or all of your money. Comments are closed.
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