By ADRIAN LOWCOCK 18/12/2009
With the Copenhagen talks continuing this week, ethical and environmental issues are becoming topical once again. There can be little doubt reducing carbon emissions has become more important and this is now on the agenda of most major governments. If the politicians fail to deliver in Copenhagen, businesses will still make changes to maintain a competitive edge. The cost of oil will rise in the long run as resources dwindle and the cost of extraction becomes much more expensive. As prices rise, industries and businesses will look for cheaper alternatives. Necessity is the mother of invention.
Investors will look for ways of accessing the new industries that will appear as a result. For many, an ethical fund is the first obvious step. Green issues have always been linked with ethical funds however, in today’s world ethical is a much broader subject and covers everything from (avoiding) arms trading to sustainable fishing.
Originally, ethical funds were created for investors who wished to avoid particular sectors, but with climate change becoming more mainstream, we are now starting to see funds being launched that are looking to exploit opportunities that may arise from environmental issues.
Our view
Irrespective of the developments and announcements that come out of Copenhagen global climate change is likely to be one of the single biggest investment themes for the next 20 years. It will affect all areas of the economy and not just ethical areas, such as green energy.
Our recommendation
We recommend Jupiter Ecology as this fund looks to identify trends in environmental, social policies and regulation. The fund has a strong ‘dark green’ mandate and because of its objectives, the fund will have exposure to small and mid cap companies so may be more volatile.
Funds such as Schroder Global Climate Change and Virgin Climate Change can invest in any industry and have no ethical mandate. They look to invest in companies which will benefit from efforts to mitigate or adapt to climate change. However, these funds are relatively new and therefore it is difficult to assess whether the manager is capable of adding value.
Investors can also access new industries through smaller companies, which have traditionally been the breeding ground for new themes (e.g. dotcoms). This route would enable them to take part without adding too much risk to the portfolio. We recommend Old Mutual Select Smaller Companies .
Finally, investors can access future leaders of the sector through existing companies (e.g. Vodafone became a world leader of telecoms and was originally a division of Racal Electronics which was founded in 1950) so it is worth ensuring your portfolio is well diversified.
If there is anything regarding this article you wish to discuss please call one of our Advisers on 020 7189 9999.