JPMorgan Says Climate Change Funds Will Pay Off, Eventually

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(Bloomberg) -- Investors in climate change-related products have been largely disappointed with their returns over the past decade. Yet there is still reason for optimism the investments will ultimately pay off, according to strategists with JPMorgan Chase & Co.

“Despite lackluster impact and returns so far, we do think climate change investing belongs in your strategic portfolio,” strategists including Jan Loeys, senior adviser of long-term investment strategy at JPMorgan, wrote in a Dec. 10 report. That’s even after their finding in a May note that pure-play climate change stock funds have trailed global stocks by about 5% annually over the past 10 years.

Lower profitability for companies in the sector, societal resistance to the significant behavioral changes needed to make a real difference and high fund fees are all factors contributing to the difficulties in the space, the strategists said.

However, JPMorgan sees three key factors that should help bolster the performance of these products:

  • Climate change appears to be accelerating, and while that’s bad news for both the environment and humanity “the odds are at least improving of some policy action and behavioral adjustments and resulting gains on climate change investments.”
  • More investors purchasing the funds will create momentum from “buying in group” effects.
  • Some of the gains will come from avoiding investments hurt by increased carbon penalties, or that are in locales -- low-lying coastal regions -- or sectors such as insurance that will be heavily exposed to more volatile weather.
    • “Climate change investing may thus have most value as a diversifier that pays off during catastrophic weather events.”

©2019 Bloomberg L.P.

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