No Danger From COP21 For Airline And Shipping ETFs

By | December 18, 2015

Scalper1 News

The world is striving to arrest the rise in the global temperature to 2 degree Celsius by the end of this century. In that vein, global leaders assembled in Paris at the COP21 meet – which was the 21st annual conference of parties – to chalk out an elaborate and comprehensive plan to lower carbon emissions and moderate the warming of the planet. In any case, efforts to check global warming have been constant across countries. Not only developed economies, but the emerging ones too are pushing themselves to attain this goal. However, following two weeks of sharp diplomacy, 196 countries agreed upon a historic agreement on climate change last Saturday. Per the agreement, developed economies will provide a minimum of $100 billion to developing nations a year to finance the needed reforms they can’t pay for to restrain greenhouse gas emission. Needless to say, clean energy stocks and ETFs as well as fossil-fuel free investments will enjoy a huge benefit in the coming days. Is There Any Loophole in COP21 Treaty? Two key pollution causing sectors, international shipping and aviation were excluded from the COP21 treaty. International shipping emits 2.4% of global greenhouse gas emissions, almost the same that the whole of Germany does. Total aviation gives up about 2% of global GHGs, and international flights make up about 65% of that number, per the source . These emissions do not come under the territory of any specific country and thus is out of the COP21 treaty. In fact, greenhouse emissions are estimated to rise exponentially by 2050. However, International Civil Aviation Organization (ICAO) has indicated to that it will plan a global market-based measure to lower carbon emissions. The agency has vowed to perk up fuel efficiency by 1.5% each year until 2020 and ‘to halve 2005-level emissions by 2050’, per citylab.com. International Maritime Organization also “has set an energy efficiency requirement for ships built in 2025, but not an overall carbon emissions target.” Needless to say, technological advancements are being tested rigorously in the aviation and shipping industry for decarbonization, but it has a long way to go. As of now, these two sectors are not as vulnerable as the fossil-fuel related sectors from Paris climate summit. Investors can safely play or dump airline and shipping stocks and ETFs on their inherent sector strength or weakness. Below we highlight two sector ETFs in detail. Airline – U.S. Global Jets ETF (NYSEARCA: JETS ) This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 34 securities with double-digit allocation going to Southwest Airlines, Delta Air Lines, American Airlines and United Continental. Other firms hold less than 4.44% share. The ETF has a certain tilt toward large-cap stocks at 62% while small and mid caps account for 24% and 14% share, respectively, in the basket. The fund has gathered $48.4 million in its asset base while sees moderate trading volume of nearly 40,000 shares a day. It charges investors 60 bps in annual fees. The fund added 13.2% in the last six months (as of December 15, 2015). Guggenheim Shipping ETF (NYSEARCA: SEA ) The $30.2 million fund tracks the Dow Jones Global Shipping Index and holds 26 securities in its basket. The index reflects high dividend-paying companies in the global shipping industry. As far as the sector breakdown goes, the fund is concentrated on the industrial sector with about 58.8% exposure while the rest is attributed to the energy sector. In terms of geographic distribution, the U.S. takes the top spot with more than 36% of focus, followed by Denmark (19.1%), Japan (13.5%) and Greece (9.5%). The product charges 65 bps in annual fees for this diversified exposure. However, the fund was off about 31% in the last six months (as of December 15, 2015). Original Post Scalper1 News

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