Society problems

Five ETFs to meet society’s future challenges

The pandemic has encouraged societies to look more into the future, as evidenced by campaigns such as “building back better”. What followed was an unprecedented pace of ETF launches directly targeting industries solving tomorrow’s problems.

In 2020 alone, 23 new thematic ETFs debuted in Europe, providing exposure to all sorts of niche sectors such as clean energy utilities, digital learning, plant-based foods and battery technology.

Illustrating support for these creative launches with compelling arguments for future growth, €10 billion of new assets entered thematic strategies last year, according to data from Bloomberg Intelligence, with 20% of that money invested in ETFs less than a year old.

Even amid a rotation into cyclical “old economy” stocks at the start of the year, demand for these strategic sector players remained resilient, with European thematics garnering €2.8 billion in inflows respectively. in January and February, which represent the two strongest individual and consecutive months. growth for the asset class.

Beyond the short-term successes, however, the challenges of greening the global energy mix, consolidating the supply of critical resources, protecting the increasingly virtual transfer of knowledge, and improving prospects for aging populations will continue to raise pressing questions.

As a result, ETF feeds has selected five ETFs that seek to address these issues.

1.iShares Digital Security UCITS ETF (LOCK)

The most asset-rich ETF on our list is LOCK, which is the most diversified, second-largest and cheapest cybersecurity strategy available to European investors.

With a total expense ratio (TER) of 0.40% and tracking the STOXX Global Digital Security Index of 124 stocks, LOCK has amassed $1.4 billion in assets under management (AUM) since its inception in 2018.

This success has been driven by investor demand for a product that brings together several of the biggest names in cybersecurity software under one banner, with a HIS Markit survey earlier this year revealing that 46% of UK businesses plan to increase their spending on cybersecurity capabilities going brazen.

Recent examples of cybercrime will only intensify as the capabilities of hackers grow and more of our work and leisure is done virtually. Along with cyberattacks on US government assets and a $50 million ransomware attack on Saudi Aramco two weeks ago, the EU is now calling for a combined quantum communications infrastructure.

2. L&G Clean Water UCITS ETF (GLUG)

Having seen its assets under management grow from $60 million to $266 million so far this year, GLUG is a rising star tackling a well-established problem: drinking water shortages.

With a total expense ratio (TER) of 0.50% and tracking the Solactive Clean Water Index of 66 equally weighted stocks, GLUG provides exposure to companies engaged in the clean water industry through technology, digital, engineering and utilities.

Currently, some 2.3 billion people live in water-stressed countries and 2.2 billion lack access to safe drinking water, while 2% of global deaths occur each year as a result of illnesses that can be attributed to dirty water.

In addition to new innovations in clean water technologies, to which GLUG provides exposure, the ETF will also benefit from the passage of the US Senate’s $35 billion Water and Wastewater Infrastructure Act. 2021 dollars, and results from the Cerulli Associates survey, which indicated that 92% of ETF issuers expect demand for water-themed ETFs to increase over the past 24 coming months.

3. iClima Distributed Renewable Energy UCITS ETF (DGEN)

Offering a new angle for investors to gain exposure to the clean energy transition, DGEN launched in June and targets distributed and decentralized renewable energy providers.

Its 0.69% fee makes it the most expensive ETF on our list, but it tracks a specially designed index of 50 companies – the iClima Distributed Energy Index – enabling the generation and management of renewable energy near the end user.

These include residential solar panels, energy storage, smart meters, vehicle-to-grid energy, electric vehicle charging, smart inverters, and AI-powered software solutions.

Some consumers are already reaping the long-term benefits of home renewable energy generation – even recouping the initial cost of installing hardware such as solar panels after a number of years by selling the electricity back to the centralized grid.

This trend is expected to continue as costs come down due to increased scale. With that, a digitized and decentralized energy sector – including transport and heating electrification – could see up to $846 billion invested in distributed energy sources between 2020 and 2030.

4. iShares Aging Population UCITS ETF (AGED)

Targeting perhaps one of the most inevitable themes on our list, the $895 million AGED ETF provides exposure to products and services that will be in increasing demand as demographic pyramids over countries will increasingly reverse.

Charging the same fees as LOCK, AGED tracks the STOXX Global Aging Population Index of 358 stocks across healthcare, financial services, consumer goods and real estate.

Given that nine of its top 10 holdings are healthcare stocks, AGED has remained popular over the past year as vaccine data boosted the sector, while the reopening of the economy benefited ETF allocation to financials.

In 1991, there were 9.1 million people aged 65 or over in the UK, or 15.8% of the population. By 2041, this number is expected to reach 20.4 million, or about 26% of the total population. This is important, given that the government estimates that the annual health costs of a 90-year-old are on average ten times higher than those of a 16-year-old. Increased spending, innovation and continued private outsourcing are all likely options to deal with future strains.

5. Rize Environmental Impact 100 UCITS ETF (LIFE)

Finally, for those who want a mix of niche sub-sectors, the newly launched LIFE ETF offers exposure to several segments of the sustainable industry.

Launched in July with a 0.55% fee, LIFE tracks the Foxberry SMS Environmental Impact 100 Index which provides exposure to 100 companies operating in clean water, energy efficiency, energy saving solutions circular energy, renewable energy, electric vehicles, pollution control, alternative fuels and nature-based solutions and climate resilience.

As well as benefiting from the investment cases behind each of its sub-themes, LIFE’s catch-all approach means it doesn’t have the same sector risks faced by many other themes.

Additionally, while diverse, the ETF’s focus on impact investing economics means that it remains compliant with Article 9 of the Sustainable Financial Disclosure Regulation (SFDR) while by being part of the $715 billion impact economy, which is expected to gain $48 billion in 2021, according to a report by GIIN.


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