Indxx has launched a thematic index – the Indxx Climate Change Index – tracking global companies from developed markets that provide products or services to mitigate and remediate the effects of climate change. The New York-based indexing boutique hopes that the index, which has been designed with ETF product development in mind, will enable investors to take a more climate-friendly perspective as well as gain exposure to the megatrend of climate change.
The index includes stocks that receive over 50% of their revenue from activities related to providing climate-related infrastructure and energy efficient solutions.
Rahul Sen Sharma, partner at Indxx, commented: “Indxx has always been at the forefront of thematic and trend investing, we believe climate change could be the most important long-term trend for investors. Since the Paris Climate Summit in 2015, many investors are looking to align their investments in companies which manage climate risk and have a sound climate change strategy in place.”
The index methodology screens for companies in four sub-themes: climate change infrastructure providers – companies that are involved in the development of infrastructure that facilitates the production and use of alternative energy; waste management – companies that regulate and monitor waste; energy efficient solutions – companies that develop components aimed at increasing energy efficiency; smart grids – companies that are involved in the development of smart grid infrastructure designed to make the electricity supply chain more efficient.
Using a global developed markets selection universe, firms that make over 50% of their revenue from one of the sub-themes are included in the index, subject to minimum size and liquidity constraints.
The index currently has 52 constituents, the largest three being SMA Solar Technology (3.5%), SolarEdge Technologies (3.1%) and Takuma (2.6%). In terms of country exposures, the largest weighting is to the US with 39%, followed by Canada (11%), Germany (6%) and Japan (5%).
Since its base date in June 2012, the index has returned 22.7% per year compared to the 12.3% returned by the MSCI World All Cap Index, although the figures are somewhat skewed by the 85% the index returned in the 2013 calendar year.
“The Indxx Climate Change Index helps investors identify those companies which provide climate-related infrastructure and energy efficient solutions,” continued Sharma. “We believe as more and more asset managers are inclined to have cleaner portfolios, these infrastructure and efficient energy solutions providers will witness strong growth.”
Investors looking to play the climate-related theme right away might want to consider the First Trust Global Wind Energy ETF (NYSE Arca: FAN), the Guggenheim Solar ETF (NYSE Arca: TAN) or the First Trust NASDAQ Clean Edge Green Energy Fund (NASDAQ: QCLN).