A new exchange traded fund seeks to provide an easy way to invest in the raw materials needed to power the transition to cleaner energy.
The Harbor Energy Transition Strategy ETF
which was listed July 14, will track the performance of the Quantix Energy Transition Index, whose three main commodity categories are metals used in new-energy infrastructure construction, such as copper, aluminum and silver; lower-carbon-intensive assets such as natural gas that act as a bridge toward a net-zero future; and carbon credits designed to incentivize investment in clean energy.
The ETF, which is managed by a team of former Goldman Sachs commodities professionals at Quantix Commodities LP, invests in commodities futures, differentiating it from similar funds, which mostly own equities.
Don Casturo, founding partner and chief investment officer at Quantix, says the industrial commodities needed to build the necessary infrastructure are well-known. However, given where the world is in the energy transition, companies are still competing to be the dominant technology at the center of the transition, “which makes it difficult to pick the right mix of companies to invest in.”
Instead, he says, “direct investment in commodities will help facilitate the transition regardless of whatever the ultimate dominant technology turns out to be.”
Since the global financial crisis in 2008, the end of the last commodities boom and ultra-low interest rates, there’s been little investment in commodities and a lack of financial product innovation in the space, Casturo says. He attributes the recent rise of inflation to 40-year highs to a lack of basic energy resource supply that’s been exacerbated by the energy transition.
Most commodity indexes are either broad-based and contain a range of natural resources, or heavily lean into fossil fuels. Existing commodity benchmarks such as the GSCI or Bloomberg Commodity Index “are based on old-world energy sources,” Casturo says. “What we are trying to achieve by launching an alternative index is one more focused on where the world wants to head.”
Now with a greater need to build more solar panels, charging stations, batteries and other devices to wean the world off fossil fuels and avoid the worst of climate change, the metals needed to enable the energy transition are in short supply.
Kristof Gleich, president and CIO of Harbor Capital Advisors, pointed to data from the International Energy Association that an electric vehicle needs about six times the amount of copper, lithium, nickel, cobalt, manganese or graphite than an internal combustion engine.
“We’re going to be transitioning away over the next 30 years from a hydrocarbon world. And the amount of metals and minerals needed in order to do this is quite hard to overstate,” he says.
The fund will cost 0.80% to own annually, which makes it a little more costly than other commodity-index-based ETFs.