Invesco has launched a new ETF in Europe providing climate-focused exposure to a diversified portfolio of commodity futures.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco.
The Invesco Bloomberg Commodity Carbon Tilted UCITS ETF has been listed on London Stock Exchange in pound sterling (Ticker: CMCG LN), on Xetra (CMOC GY) and Euronext Milan (CMOC IM) in euros, and on SIX Swiss Exchange in Swiss francs (CMOC SW).
The fund utilizes synthetic replication (through unfunded swaps) to track the Bloomberg Commodity Carbon Tilted Total Return Index.
The underlying index is based on the flagship Bloomberg Commodity Index (BCOM), one of the most well-established benchmarks for the performance of the broad commodities universe.
BCOM consists of 24 individual commodity futures across six commodity sectors: energy, grains, industrial metals, precious metals, softs, and livestock. Commodities in the index are weighted two-thirds by liquidity and one-third by global production while capping the influence of any single commodity sector at 33%.
BCOM’s target weights for 2023 are energy (29.95%), grains (22.64%), industrial metals (15.94%), precious metals (19.44%), softs (6.97%), and livestock (5.06%).
The carbon-tilted index underlying the ETF aims to significantly reduce BCOM’s carbon footprint while simultaneously limiting tracking error and delivering a similar risk/return profile. It does this by maintaining the same target sector weights as BCOM while applying a tilt factor to individual commodities within each sector, overweighting those with lower greenhouse gas emissions per unit of production as measured through the commodity’s entire lifecycle.
According to Bloomberg, based on back-tested data from 2012 to 2023, the carbon-tilted index exhibited 20.5% lower greenhouse gas emissions per year, on average, compared to BCOM.
The ETF comes with an expense ratio of 0.35% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosures Regulation (SFDR).
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, commented: “Demand for sustainable investments has been a persistent theme, particularly with respect to climate issues. We have seen investors increasingly using ETFs as an efficient, low-cost way to express their views, with many investors having integrated environmental, social, and governance strategies into core equity and fixed income components. We are now speaking to investors who want to improve sustainability in the rest of their portfolios. Our new ETF provides broad commodity exposure, with an index methodology that accounts for environmental impacts, and carries the SFDR Article 8 classifications many ESG-conscious investors look for.”
Paul Syms, Head of EMEA Fixed Income and Commodity ETF Product Management at Invesco, added: “Commodities can play several roles such as a portfolio diversifier, a hedge against inflation, or a means to gain access to potential growth opportunities. The transition to a low-carbon economy will touch every commodity in the index, including those that are playing an important part in the development of new green technologies. We believe this new ETF offers investors the ability to diversify and align their portfolios more closely with their environmental objectives.”
Sustainable commodity strategies represent a relatively underexplored segment of the European ETF industry although Invesco is not the first to introduce such a product. Last month, UBS Asset Management launched the UBS ETF – CMCI Commodity Transition SF UCITS ETF (BCFC) which provides exposure to 28 commodity futures while tilting individual commodity weights in favour of those with higher ‘Ecological-Social’ scores.