While many ESG funds that focused on traditional clean-tech assets faced challenges in 2023 due to higher interest rates, funds that chose to invest in technology sectors, like cryptocurrency, performed well.
Renowned investor Cathie Wood and her company Ark Investment Management made a big impact in the investment world when their ESG (Environmental, Social, and Governance) fund outperformed others in 2023. What made Wood’s fund stand out was its significant investment in cryptocurrency, which was different from the usual sectors associated with sustainable practices that ESG funds typically focus on.
The ESG fund that performed exceptionally well in 2023 was the Nikko AM Ark Positive Change Innovation Fund, managed by Ark Investment Management LLC. With a total value of $2.4 billion, this fund achieved an impressive return of 68%, more than doubling the return of the S&P 500. The fund’s success was largely attributed to its investment in cryptocurrency, with Coinbase Global Inc being its largest holding. It’s important to note that the fund is registered as promoting ESG according to European regulations, showing its commitment to environmental, social, and governance factors.
Thomas Hartman-Boyce, a portfolio manager at Ark, expressed confidence in the future growth of Coinbase, highlighting its role as a leading custodian for Bitcoin assets. He stated:
“Certainly Coinbase is our highest conviction name coming into the digital asset category.”
Belief in the Future and Usefulness of Cryptocurrencies
While many ESG funds that focused on traditional clean-tech assets faced challenges in 2023 due to higher interest rates, funds that chose to invest in technology sectors, like cryptocurrency, performed well.
ESG funds typically concentrate on companies that meet specific environmental, social, and governance criteria, investing in sectors that directly contribute to sustainable practices. However, Ark’s strategy, which heavily emphasizes cryptocurrency, shows a belief in the potential of digital assets to align with ESG goals. This significant deviation from the norm has not only yielded positive results in terms of performance but has also challenged the traditional boundaries of ESG investing.
This success story from Ark Investment Management could potentially lead to a new direction for ESG investing overall. The inclusion of unconventional assets like cryptocurrency in funds may become more common, signifying a shift in investment strategies.
The Nikko Ark Fund focuses on investments in disruptive technologies that align with the United Nations’ Sustainable Development Goals. Although Bitcoin mining consumes a significant amount of energy, some experts argue that the fund’s sustainability is supported by transaction transparency and the provision of financial services to the underbanked.
It’s important to note that investors in the Nikko AM Ark Positive Change Innovation Fund have experienced fluctuations in value. While they enjoyed substantial gains in 2023 after a significant decline in 2022, the value of Coinbase has decreased by around 25% so far in 2024. Some analysts have expressed concerns and recommend selling, while others believe in its long-term potential. However, the fund remains committed to its strategy and allocation to provide long-term exposure to sustainability-related innovation, focusing on new technologies that are expected to succeed without bothering about the temporary business cycle.
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