Market indices too retrospective for societal shift
By
Darin Tyson-Chan Thu 22 May 2008
Carbon awareness and climate change gives active managers the edge in global investment opportunities.
Active managers are best placed to take advantage of investment opportunities arising from the global trend to reduce carbon emissions, according to a senior asset consultant.
"When trying to anticipate which industries will grow in these conditions of change, for instance carbon capture storage industries, pipeline industries and car battery industries, the importance is to get in there first," MLC Implemented Consulting senior asset consultant David Klug said.
"If you invest in an index it means you'll only arrive along with everybody else. By using active managers and having expert managers analysing these types of structural changes and anticipating them they are able to invest ahead of the pack," he said.
In addition to the use of active managers, Klug also believes longer investment timeframes need to be employed to get the greatest benefit out of the changing world economy.
He suggested using a time horizon of between 10 and 20 years would be appropriate.
"These dollars [from carbon awareness] are going to be shifting over decades," Klug said.
"If we are going to hit managers over the head every two to three years in terms of short term performance management we are not allowing them to take that broader long term horizon in terms of discounting the cashflows they need to in order to assess the equity risks and return relationships," he added.
And investment opportunities from carbon awareness and climate change are already presenting themselves in world economies with weather hedges being the fastest growing derivatives market according to Klug.
These offerings include hurricane, snow, frost, and temperature futures and options and provide very good portfolio diversification avenues.
"It's very unlikely that any natural catastrophe is going to be linked to equity and bond markets," Klug said.
In Part 2 of our exclusive series, we ask leading names to nominate their best investments, the most effective industry group and the importance of platforms.
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