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The devil, they say, is in the details. This is especially true when it comes to investing. Recently, I was researching so-called “green” funds, looking for those that are beating the market. I came across one that few people have heard about, despite the fact it has a good, if short, track record. It’s the Purpose Global Climate Opportunities Fund (TSX: CLMT). It’s also offered as a mutual fund with A and F units.
The fund’s stated objective is “to capture the tailwinds from the fight against climate change by investing in transformational technologies, energy transition opportunities, and sustainability leaders across the world.”
To most people’s minds, that mandate would conjure up images of a fund dedicated to solar power, wind farms, hydro, electric cars, battery manufacturers, etc. They’re there all right. But so are some other stocks that may come as an unpleasant surprise to dedicated environmentalists.
This is a global fund, actively managed by Jeremy Lin, Nicholas Mersch, and Greg Taylor of Purpose Investments. It’s a new entry, launched in May 2021. So far, investors barely know it exists; assets under management are only $14 million. The management expense ratio is high, at 1% for the ETF, although this should come down as the fund grows
What caught my attention was the returns this fund has posted in its brief history. In a year when most securities are down, the ETF reported a gain of 5% for the 12 months to the end of September, compared with a 13.1% loss for the S&P/TSX Composite Index inf the same period.
So, what’s in its portfolio? Most of the names will be unfamiliar to investors but a few of the more recognizable ones are Cameco Corp. (uranium) and Brookfield Renewable Partners (mainly hydro). However, there are some holdings that look puzzling, given the fund’s mandate.
Most people might expect a fund of this type to avoid hydrocarbon companies. But a review of the holdings tells a different story. The largest position is in HollyFrontier Corp., at 8.4%. This is primarily a refinery company, headquartered in Dallas. It recently bought Sinclair Oil for $2.6 billion and now operates under the name HF Sinclair. The company has a growing renewables business, but most of its revenue comes from conventional hydrocarbons.
Also included in the portfolio are Tourmaline Oil, Canada’s largest natural gas producer, and Vermilion Energy.
In fact, at the end of September, about 40% of the portfolio was invested in energy companies. Some of them are “green” in the classic sense, but some are not. The hydrocarbon companies in the portfolio have contributed significantly to the fund’s outperformance this year. As of Sept. 23, HF Sinclair was up 50% year-to-date, while Tourmaline was ahead 70% and Vermilion by 68%.
I asked Purpose Investments why a fund of this type is holding conventional oil and gas stocks. Co-manager Jeremy Lin replied in an e-mail that the transition to a green energy world will take time and investors must recognize that.
“The road to full energy decarbonization is paved with low-carbon transition fuel,” he said. “That’s why we invest in low-carbon fossil fuels and not just renewables. Governments and investors around the world are waking up to the harsh reality that hitting net-zero is impossible without the proper raw materials required. Low-carbon fossil fuel producers, companies investing in local supply chains, and renewables that can generate energy will be the winners in the new world for decades to come.”
Readers can decide for themselves if that’s an acceptable rationale, but it certainly helps explain why the performance numbers look so good in comparison with the broad market, or to other “green” funds more focused on renewables. But the energy component also adds to the risk if there’s a further decline in oil and gas prices.
In case you are interested in the ETF version, note that due to the small asset base, it is very thinly traded – an average of only 212 units a day. The mutual fund units are readily available.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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