Mind the behaviour gap

How to avoid losing money investing in the energy transition

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Estimated reading time ~ 7 mins

“I freely concede that the ETF is the greatest marketing innovation of the 21st century.” - John Bogle

Exchange traded funds (ETFs) that enable investors to target specific climate themes are nothing new.

Beginning as far back as 2007, the earliest funds allowed investors to get exposure to the growth in renewable energy. More recently, several funds have launched focusing on themes as diverse as green hydrogen, battery metals and technology, veganism, Paris aligned companies, and of course carbon markets.

More broadly, thousands of new specialised ETFs have launched over the past decade, spurred on by the low cost of issuance and heightened competition between issuers to deliver innovative new products. The trend is not unique to climate: from marijuana to the metaverse, and from Brazil to bitcoin, fund issuers will have a product just for you.

Broad-based ETFs offer investors the ability to achieve diversification at low cost. This was the first breed of ETFs and began to enter the market in the mid-1990’s. Increased competition has eroded fund manager fees making them even more attractive to investors. In response, issuers took to developing specialised ETFs that could charge a much higher fee - often several times higher. Research indicates that on an average risk-adjusted basis, new specialised ETFs tend to be particularly bad investments, but not because of the high fees.