The Betashares Climate Change Innovation ETF (ASX: ERTH) is an exchange-traded fund (ETF) that gives investors exposure to leading global businesses that are driving decarbonisation.
Many companies are now working towards achieving net zero emissions within a certain timeframe. And there are specific businesses developing products, services, and improvements that can help businesses and households reduce their impact on the planet.
The ERTH ETF's underlying stocks have strong tailwinds because many billions (or even trillions) are expected to be spent on decarbonisation in the coming years.
What does the ERTH ETF invest in?
The Betashares Climate Change Innovation ETF tracks an index boasting a portfolio of up to 100 businesses making at least half of their revenue from products and services that address climate change and other environmental problems by reducing or completely avoiding CO2 emissions.
The ASX ETF's businesses are focused on several different areas: clean energy, electric vehicles, energy efficiency technologies, sustainable food, water efficiency, and pollution control.
The ETF also applies a range of environmental, social, and corporate governance (ESG) screens to the portfolio. It excludes companies directly involved in the fossil fuel industry, companies with fossil fuel-related revenue above a threshold, and certain other less-than-green business activities.
What does the Betashares Climate Change Innovation ETF own?
On a sector basis, Betashares has split its holdings between five areas. Looking at its portfolio, the ASX ETF has invested 23.5% in companies involved in sustainable products, 13.5% is invested in water and waste improvements, 21.2% in green transportation, 18.7% in enabling solutions, and 23% in green energy.
The portfolio is diversified geographically, with the United States accounting for 41.9% of the portfolio. In globally focused ETFs, the US typically has an allocation of at least 70%, so there's more invested in other places.
Other countries with a weighting of at least 2.6% include China (10%), South Korea (6.9%), France (6.5%), Denmark (5.8%), Switzerland (5%), Japan (4.3%), the United Kingdom (2.6%) and Ireland (2.6%).
You may recognise a few of the ERTH ETF's 10 largest positions:
- DSM Firmenich – 5%
- Ecolab – 4.9%
- Cie de Saint-Gobain – 4.9%
- BYD – 4.4%
- American Water Works – 3.9%
- Vestas Wind Systems – 3.7%
- East Japan Railway – 3.7%
- First Solar – 3.2%
- Tesla – 2.8%
- Zoom Video Communications – 2.7%
Each of the above businesses is making a difference in the world and reducing global pollution in its own way.
Is this a good time to invest in the ERTH ETF?
The Betashares Climate Change Innovation ETF unit price is down more than 40% from November 2021 (after the index had rallied strongly in previous years). This means investors can now invest in the underlying companies at a much cheaper price.
Keep in mind that the index this ASX ETF tracks has done well over the long-term, with an average return of 11.5% over the five years to March 2024, despite the big pullback over the last two and a half years.
If I were looking to invest in decarbonisation stocks, this could be a very good time to buy.
