TAM’s CIO Penny: Impact ETFs are the next frontier of ESG

Impact and activist investing are the next forefront of ESG investing

Theo Andrew

a man wearing a suit and tie

James Penny, CIO at TAM Asset Management, has said he is currently focusing on impact ETFs as the firm looks to grow its thematic ETF portfolio.

He added impact and activist investing was the “new forefront of ESG” with the ability to turn the narrative on traditionally non-ESG industries using their voting power.

Impact investment in ETFs came to the light following the pandemic as investors looked to green up their portfolios in a post-pandemic world.  

Penny said: “Right now, I am focusing on impact ETFs as a theme. As ESG investing becomes more mainstream, we believe the new forefront of ESG investing is going to be impact and activist investing, in which investors can move into non-ESG industries such as mining and energy and use their voting power to turn the narrative in that industry around from within.”

Current impact ETFs in the market include the Rize Environmental Impact 100 UCITS ETF (LIFE) which launched in July 2021 and provides exposure to 100 companies involved in clean water, energy efficiency, circular economy solutions and renewable energy equipment, among others.

Elsewhere, there is the iClima Global Decarbonisation Enablers UCITS ETF (CLMA) with a specific focus on companies enabling CO2 reduction.

Penny added ETFs are a great way of gaining access to a powerful theme. “Thematic ETFs will continue to grow in interest and will continue to form a critical element of fund of fund diversification both in terms of risk diversification and alpha hunting,” he said.

Elsewhere, he pinpointed healthcare as a potential theme particularly given the current economic environment.

“Healthcare is also a very interesting theme right now given its suitability to a more recessionary environment which we could potentially be looking at entering at some point in the not-too-distant future,” he said.  

When it comes to selecting an ETF within a theme, Penny noted the firm will often isolate a specific theme on its investment merits before looking at specific ETFs, followed by fees and liquidity risk.

“Beta to conventional markets is critical in the MPS world as is diversification benefits,” he said. “All-in-all the theme needs to be additive to the wider portfolio whilst delivering the same diversification credentials we would expect from an active fund in the same space.”

This article first appeared in Thematics Unlocked: Signs of a maturing ETF market, an ETF Stream report. To access the full issue,click here.

Related articles

Featured in this article