Global warming is destined to remain at the forefront of the world's concerns for quite a while. Not surprisingly, investors are seeking ways to profit from the international response to climate change, and have already spawned a handful of equity mutual funds and ETFs that focus on companies working to address global warming.
A new exchange-traded note from Credit Suisse, the Global Warming ELEMENTS ETN (NYSE: GWO ) , is the latest entry into the global-warming-investing scene. Although the note trades like an ETF, it's critical for investors to consider some subtle differences with the ETN format.
- Listing date: April 2, 2008
- Expense ratio: 0.75%
- Net assets: $4.2 million
The Credit Suisse note pays a return linked to the performance of the Credit Suisse Global Warming Index, an equally weighted index of 50 stocks focused on minimizing global warming. Companies included in the index come from both the demand and supply side of climate change. Some provide efficient energy-consumption solutions, while others improve the supply of energy-efficient technology or environmentally friendly power sources such as biofuels or fuel cells.
The index includes a variety of sectors, such as agriculture, energy, and industrial stocks. Index components include Dow Chemical (NYSE: DOW ) , Archer Daniels Midland (NYSE: ADM ) , Deere (NYSE: DE ) , and Waste Management (NYSE: WMI ) .
Credit Suisse (NYSE: CS ) issues these notes. Unlike ETFs, which usually hold shares directly, investors here assume the risk that the issuer may default on the ETN, which is a debt obligation. The recent meltdown of Bear Stearns (NYSE: BSC ) reminded investors of dangers such as this. Credit Suisse's parent company, Credit Suisse Group, currently has long-term ratings of Aa2 from Moody's and A+ from S&P, with a negative outlook from Standard & Poor's.
In addition, while ETFs theoretically go on forever, ETNs have specific maturity dates. This global warming ETN matures in 2023, and the price of its notes may be affected by the time remaining to maturity. There is also a call feature on the notes, allowing Credit Suisse to buy them back from investors if the fund has attracted less than $5 million in total investments after April 2011.
One benefit of the ETN structure is favorable tax treatment. However, with pressure from mutual fund competitors and revenue-hungry legislatures seeking new taxes, ETNs have been placed under the microscope, and Washington may change these investments' taxation in the near future.
Given ongoing high energy prices and continued interest in the challenges of global warming, climate-change-centered investments may be a prudent option. The Credit Suisse ETN gives investors one more choice to consider in the area.