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Climate Change Could Offer Fertile Ground

1 August 2014 in Trading Ideas

Our newest investing idea springs from the thought that it has become seriously difficult to argue that Earth isn’t rapidly undergoing an environmental change.

Last year, for example, was the fourth-warmest globally since records began in 1880. And 2013 also marked the 37th year in a row that the annual global temperature was above average.

The warmest year ever on record? 2010 – just four years ago.

In fact, including 2013, nine of the 10 warmest years in the 134-year-period of record-keeping have occurred in the 21st century.1

This “new normal” has also had an obvious link to harsh drought conditions. In California, for instance, where much of the state had its driest year on record in 2013, statewide precipitation for the year ending June 30 was 12.4 inches – not even half the historical annual average of 25.3 inches. According to the latest data from the National Drought Mitigation Center, over 80% of the state is suffering from “extreme” or “exceptional” drought.2

Thankfully, such dire conditions have finally led to government action and policy changes. President Obama announced a Climate Action Plan to cut 3 billion tons of carbon pollution by 2025, with an increased emphasis toward clean and efficient energy.3

It also led us to consider this an investing opportunity: a portfolio of stocks of companies that have begun to focus on providing services that respond to the challenges brought by climate change.

The Climate Change motif works from the notion that this sector is expanding quickly. Between the first and second quarter of 2014, global investments in climate change-linked reform grew 33% to $66.2 billion.

The motif’s top segments include water and waste management (companies offering services such as desalination, wastewater treatment and energy generation from waste), agriculture (companies producing genetically modified crops and seeds, and renewable energy (companies operating clean energy plants involving wind, solar, water and other sources).

The motif’s top holdings include Covanta Holding, Monsanto and Syngenta.

If you’re inclined to think favorably of the investment opportunity being presented by goods and services tied to climate change, this motif may be worth your attention.

1National Climatic Data Center, Global Analysis – Annual 2013, http://www.ncdc.noaa.gov/sotc/global/2013/13, (accessed July 29, 2014).

2“The Pacific’s wayward child,” economist.com, July 28, 2014, http://www.economist.com/blogs/babbage/2014/07/difference-engine-2?fsrc=scn/tw/te/bl/ed/pacificswaywardchild.

3President Obama’s Cimate Action Plan Progress Report, June 2014, http://www.whitehouse.gov/sites/default/files/docs/cap_progress_report_update_062514_final.pdf, (accessed July 22, 2014).

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