Clean Energy ETFS: a new sustainable trend

• Autor(a) principal: Gomes, João Filipe Rodrigues Ferrão
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.26/43237
• topic: Exchange-Traded Funds; Clean Energy; ESG; Geometric Brownian Motion; Monte Carlo Simulation; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Sustainability is becoming a very important topic, which reflects the collective awareness to not degrade even more our dear planet. Finance is also becoming more democratic and people can now invest in the stock market for as little as 10 Euros. Additionally, the sustainability issue has been impacting the finance industry through environmental, social, and governance initiatives (ESG). This master thesis analyzes the future performance of a selected group of clean energy Exchange-Traded Funds (ETFs) and compare them to a representative benchmark that is the MSCI World Index. This study tries to formulate if it is better to invest in a fund that represents the majority of the companies in developed countries, in a broad ESG fund that encompasses some environmental categories, or whether is it better to support the different environmental categories individually. To do so, past performances are analyzed - from January 1st, 2010 to December 31st, 2021 - and by the use of the geometric mean and standard deviation, we analyze the expected future valuations. The methodology used to create the future ETFs’ price is the Geometric Brownian Motion (GBM), which is retested several times with the help of a Monte Carlo Simulation. The key findings of this thesis are that an investment in Invesco Water Resources and in World Index can provide a positive and steady return over the period studied. Furthermore, if we invested in Invesco Solar and in iShares Global Clean Energy, it can constitute a poor investment decision since both underperform the broad market. This work contributes to the existing literature regarding sustainable finance and investing in a specific World Index and in some selected exchange-traded funds that are exposed to the broad clean energy environment and in some specific categories, such as solar, wind, water, and lithium. The results provided help those who wish to have a degree of exposure to clean energy funds in their portfolio, only regarding the past performance of these funds and through multiple simulations, project the outcome into the future.