At the time of writing there are more than 300 ASX ETFs.
Many are designed to track traditional markets like the S&P/ASX 200 Index (ASX: XJO) or S&P 500 Index (SP: .INX).
These can be fundamental parts of your investment portfolio.
However over the years there has also been a rise of thematic funds.
Thematic investing is useful if there is a specific industry, technology, or emerging market that you want exposure to.
One that has caught my attention is Betashares Energy Transition Metals Etf (ASX: XMET).
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Betashares Energy Transition Metals Etf (ASX: XMET)
This fund was first listed in 2022, so it is a relatively new ASX ETF. Over the past year it has risen more than 50%.
It aims to track the performance of global companies in the Energy Transition Metals ('ETMs') industry. ETMs are raw materials that are essential to the transition to a less carbon-intensive economy.
This includes global producers of copper, lithium, nickel, cobalt, graphite, manganese, silver and rare earth elements.
It also includes companies involved in the recycling and processing of these raw materials.
At the time of writing it is made up of 27 holdings. Its largest geographical exposure is to Canada (28.2%), USA (16.1%) and Australia (14.0%).
The clean energy push
The main reason I see this as a viable long term investment is that the global push for clean energy solutions requires select ETMs that this ASX ETF provides exposure to.
For example, disruptive products like renewable energy, battery storage, and electric vehicles are critically dependent on these types of raw materials.
The fund also follows an ESG and fossil fuel consideration framework.
According to the fund, companies are excluded if their revenue from certain business activities exceeds a defined materiality threshold or if they are non-compliant with UN Global Compact principles.
Examples of companies that may be excluded include oil, gas or coal producers.
ESG and Greenwashing
ESG investing is based on environmental, social, and governance considerations and is becoming increasingly important to investors.
The rise of ESG thematic investing has resulted in a variety of funds that actively exclude companies that do not align with certain ESG goals or frameworks.
However, ESG investing and the prevalence of greenwashing can make it difficult to determine whether an ETF truly supports environmentally sustainable practices or simply markets itself that way.
Furthermore, combining these goals with financial performance can also be a tricky tightrope to walk. Just because a fund is ESG focussed, doesn't guarantee growth. And after all, that's still the goal of any investor.
I believe the XMET ETF provides perhaps a balance between the two with a more proactive approach. It targets companies that are committed to contributing to a clean energy transition and excludes those that don't. It comes with a framework that is based on exposure to companies that are essential to this transition.
This is different to some other ESG labelled funds that simply avoid companies that have negative environmental or social impact. While this technically still is ESG investing, these funds don't necessarily target companies that are proactively contributing to this goal.
Additionally, just because a company is aligned with ESG goals, doesn't mean it is set for growth.
The bottom line is, if you are looking for a thematic fund that gives exposure to clean energy transition, XMET ETF could be a long term option.
