The interest in ESG (Environmental, Social, and Governance) investing has surged in recent times with investors progressively emphasising not only financial returns but also environmental and social responsibility.
Prominent asset manager, 7RCC, recently took a unique step in the realm of cryptocurrency investments by filing an application with the Securities and Exchange Commission (SEC) for a groundbreaking ESG focused Bitcoin ETF.
In further news relating to ESG funds, Yahoo Finance has today revealed that Ark Investment Management LLC has taken the lead with its groundbreaking $2.4 billion Nikko AM Ark Positive Change Innovation Fund (ticker NIPCIPJ LX).
2023 witnessed this top performing ESG fund outshining its peers spectacularly, posting a remarkable 68% return, more than double the gains of the S&P 500. What sets this fund apart is its significant exposure to the world of cryptocurrencies, particularly exemplified by its substantial investment in Coinbase Global Inc., comprising nearly 10% of its portfolio.
At the core of Nikko-Ark’s success is its strategic investment in Coinbase Global Inc., the largest U.S. cryptocurrency exchange. Thomas Hartmann-Boyce, a portfolio manager at Ark, highlights Coinbase’s pivotal role as “the leading custodian for those underlying Bitcoin assets.” The fund’s conviction in Coinbase is not merely speculative; it stems from the recent approval of Bitcoin exchange-traded funds by the U.S. Securities and Exchange Commission (SEC). Despite the subsequent dip in Bitcoin prices, analysts believe that Coinbase shares have significant growth potential, aligning with the fund’s optimistic outlook.
While conventional clean-tech ESG assets faced challenges due to disruptions in capital-intensive projects triggered by higher interest rates, ESG funds like Nikko-Ark found success in alternative corners of the tech industry. The fund’s portfolio, guided by Ark Investment Management and implemented by Nikko Asset Management Co., focuses on disruptive technologies aligning with the United Nations sustainable development goals. Notably, the fund acknowledges Bitcoin’s energy consumption but emphasises the sustainability rationale in terms of transparent transactions and financial services for the underbanked.
ESG funds that navigated away from traditional green assets and embraced technology-centric investments thrived in 2023. The JPMorgan US Technology Fund (JPMUSTC LX), another top performer, delivered an impressive 65% return. Like the Nikko Ark portfolio, it falls under the ESG category, officially known as Article 8 under the European Union’s Sustainable Finance Disclosure Regulation. This trend underscores the market’s recognition of the positive impact of tech innovations on environmental and social fronts.
Ark’s strategy revolves around achieving a compound annual rate of return of at least 15% over the next five years for its high-conviction public equities. These include not only Coinbase but also CRISPR Therapeutics AG, Block Inc., and Pacific Biosciences of California Inc. Acknowledging the fund’s inherent volatility, with a more than 50% slump in 2022 followed by a stellar 2023, the team remains resolute in their commitment to long-term exposure to sustainability-related innovation.
Investors in the Nikko-Ark Positive Change Innovation Fund have experienced the highs and lows characteristic of innovative investments. The fund’s stellar performance in 2023 came after a significant slump in 2022, highlighting the resilience of its strategy. However, the year 2024 has posed challenges, with Coinbase down about 25%. Despite this, Peter Graf, the Chief Investment Officer for Nikko in the Americas, expresses unwavering commitment to the fund’s strategy, emphasising its long-term vision amidst a volatile macroeconomic outlook and a challenging start for tech stocks.
Contrary to being labelled purely as a growth portfolio, Graf emphasises the diverse nature of the fund, incorporating a small-cap flavour and presenting itself as a bottom-up portfolio. The focus remains on individual companies and their potential to thrive irrespective of the business cycle. The underlying philosophy revolves around the belief that new technologies will continue to flourish, making the fund a robust player in the ever-changing landscape of ESG investments.
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