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Lauren Juliff and Henrik Wold Nilsen
Climate and Nature 2 min read time

"Magnificent" performance

By Lauren Juliff, Head of UK Institutional, Climate & Sustainability Product Lead and Henrik Wold Nilsen, Senior Portfolio Manager

A review of climate index strategies

In this commentary we look at the top overweight positions of climate index tracking funds relative to the market cap weighted index and find that almost all of them have relatively large overweights in the "Magnificent Seven", representing meaningful stock specific risk.

As the strapline for the 1960 Yul Brynner Western (almost) goes: “They were seven ... THEY (FOUGHT) PERFORMED LIKE SEVEN HUNDRED”. Global stock markets have been dominated this year by just seven US tech companies. "The Magnificent Seven", Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla, have been responsible for “all of the gains in global stocks” throughout 2023 so far, due to investor projections about the prospects for Artificial Intelligence.

This is a much-reported topic, but this "Magnificent Seven" phenomenon has an important but so far under-reported consequence that we think is worth investor attention. We find a positive relationship between the performance of climate index funds and their positions in the Magnificent 7 stocks throughout 2023 and question whether this is aligned with the objectives of investors seeking "passive" global equity replacement strategies or exposure to the climate transition opportunity.

Read the full commentary here:

The Magnificent Performance of Climate Index Tracking Strategies

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