Green Buildings ETF
Global X, the subsidiary of Korean finance giant Mirae, is launching a green buildings ETF, which targets construction companies with lighter carbon footprints.
The Global X Green Building ETF (GRNR) tracks the Solactive Green Building Index. The index is purpose-built by Solactive for this fund, as is common for Global X’s ETFs.
The index is made of companies that help produce greener buildings. The construction industry is highly polluting.
To that end, the index looks for companies involved in construction or building management that are judged to be greener by independent agencies or accrediting bodies. Eligible companies can include engineering firms like Kone; real estate investment trusts like Boston Properties; or property developers like China Overseas Land and Investment Limited.
The agencies and bodies that judge green-ness can include NGOs, or just industry funded lobby groups.
The fund is market cap weighted, subject to a 4% cap on its biggest stocks.
It charges 0.45%.
Bernie’s commentary – can’t see it working
One of the things I like to do in my free time is analyse REITs. They’re often thought to be boring, but they’re steady compounders with low beta and tax efficiencies, so in my view there’s always a place in portfolios for them.
The reason I like to analyse REITs rather than just ‘buy the market’ is that I don’t think plan vanilla REIT sector indexes are up to date. They’re often full of shopping centres or office property managers, who have been disrupted by the internet.
(Online shopping killed the mall; WFH killed office). Just look at IUKP here in London.
So I’ve got a certain amount of sympathy for ETFs like this that try and put a new spin on REITs. We saw a really good take on this when Global X launched its Global X Data Center REITs & Digital Infrastructure ETF (VPN) some months back.
That being said, I think this is the wrong approach. Why?
For one, I don’t see any evidence that advisers and retail investors want this type of product. Invesco already has a similar ETF, the Invesco MSCI Green Building ETF (GBLD). It has collected just $5.6M despite listing 12 months ago.
For two, I’m not sure these accrediting bodies, who judge buildings to be green, can really be trusted. I won’t go into detail about it here. But if you want to read about the flaws in the US Green Building Council, the lobbyists whose accreditations Solactive and Global X are using, rating system you can find them here.
For three, I think it’s a category error. I’m not sure that the real estate sector – rather than, say, the energy sector – is the logical place to go shopping for climate opportunities. It makes about as much sense as “green healthcare”.
Then again, this fund is thinking along the right lines. And hopefully it can get people to think more seriously about where opportunity might be in REITs might lie.