Wellington Management: Climate investing: the case for a market-neutral approach
Nathan Ritsko, Investment Director, and Eric Krusell, CFA, Investment Specialist, both working at Wellington Management, explore why climate change is a compelling organising principle for investing. In addition they highlight the potential benefits and risks of market-neutral implementations.
As the evidence of climate change and its impact on market grows, asset owners are increasingly engaged in addressing the investment implications. But questions remain on how to invest in this emerging megatrend. In this article, they share their views and highlight the potential benefits and risks of market-neutral approaches to climate investing — including their potential to better capture inefficiencies and mitigate risks.
- Climate change is driving rapid, widespread, and uneven disruption in companies, industries, and economies — making it an impactful organising principle for investing.
- Both long-only and market-neutral implementations for climate investing may be attractive for investors, depending on their time horizon and appetite for volatility.
- Market-neutral approaches offer a wider opportunity set and have the potential to generate uncorrelated absolute returns with lower volatility.
- It is critical to proactively mitigate the potential risks of a market-neutral approach, such as possible breakdowns in neutrality or unintended factor risks.
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