Energy transition commodities
Harbor Capital, the Chicago based fund manager, is launching an energy transition commodities ETF.
The Harbor Energy Transition Strategy ETF (RENW) tracks the Quantix Energy Transition Index. The index was developed by hedge fund Quantix Commodities, which acts as sub-adviser to the fund. The index identifies commodities best-placed to benefit from the clean energy transition.
The current futures included in the index are: copper, aluminum, nickel, zinc, lead, natural gas, silver, palladium, platinum, soybean oil, ethanol, and carbon allowances (European Union Allowances (EUAs), California Cost Allowances (CCAs).
Each commodity gets capped at 15% and floored at 2%, to better diversify the fund.
RENW charges 0.80%.
Bernie’s commentary - how to proxy for market weight?
The idea behind this ETF is what BlackRock is calling “greenflation”. As the world embraces renewable energy, the prices of the commodities used to build green technology like batteries and solar panels will inflate. (Central bank rate hikes are powerless to stop this, much like they are powerless to stop the Russia Ukraine war’s impact on energy markets).
Harbor and Quantix have taken this basic premise, then added some more bits like carbon allowances – which follow the price of carbon, which should rise thanks to carbon taxes – and natural gas, which is less carbon intensive than coal and oil and seen by some as green[er]. Much of the carbon savings achieved in the US in recent years have owed to the use of gas rather than oil and coal.
The investment thesis is sound enough. (Enjoying the heatwave?) And what’s more it’s not backward looking at all – we are nowhere near close to achieving the Paris climate targets (which frankly aren’t ambitious enough anyway). Meaning there’s plenty of room for these commodities to rise even higher.
I guess the only question I have is how do you proxy for market weight here if you want to accurately capture the theme? You can’t just take the size of the futures markets, or the total consumption footprint of each commodity. After all, these commodities aren’t just used for clean energy. Yet if you go some other route, you’ll end up with an inevitably arbitrary weighting scheme.