Rize ETF | Thematic Investing Commentary

In today’s rapidly evolving market, investors need to stay on top of the latest trends and themes that fuel growth. In this monthly publication, we offer our market commentary across our themes, covering new opportunities and potential challenges. By providing a deeper understanding of our themes, we aim to help you make more informed investment decisions and achieve your investment goals.

Sustainable Future of Food

The European Union (EU) is currently undergoing a pivotal review of its regulations concerning gene-edited crops in agriculture.¹ The European Commission aims to permit the cultivation of crops modified through cutting-edge new genomic techniques (NGTs) like CRISPR gene editing within the EU. By doing so, the EU seeks to lift the de-facto GMO ban that has constrained the use of such crops in the region for the past two decades.

Historically, the EU has leaned towards organic agriculture, which strictly prohibits GMOs and NGTs, while emphasising the reduction of inputs such as fertilisers and pesticides. Nonetheless, by altogether dismissing these solutions, the EU has missed out on the environmental advantages they offer. Embracing gene-edited crops presents a promising opportunity to unlock significant environmental benefits and promote sustainable agriculture. As nations across the globe search for solutions to minimise agriculture’s environmental impact, adapt to climate change and increase food production, the EU could play a vital role by embracing a diverse array of tools, including gene editing, to achieve these goals.

Environmental Impact

In August, Japan began releasing the first tranche of over a million tons of treated radioactive water from the Fukushima nuclear plant into the ocean, triggering a complex diplomatic and environmental situation.² The water in question has been stored since the tsunami in 2011 when leakages resulted in contaminated water mixing with groundwater. Prime Minister Fumio Kishida defended Japan’s scientific rigor with the disposal process, pointing out that the water has been treated to remove radioactive isotopes. However, the move elicited a swift ban on seafood imports from the Fukushima region by China, causing tensions with Japan’s largest seafood importer. Japan also faced strong opposition at home with protests and empty fish markets as consumers rushed to stock up on fish prior to the treated water being released. Whilst it may sound alarming, discharging treated water from nuclear power plants is nothing new and has been practised for over 60 years without any major incidents of harm to people or the environment.

USA Environmental Impact

In August, we introduced our new SFDR Article 9 Rize USA Environmental Impact UCITS ETF (LUSA). LUSA, a pioneering sustainable ETF, is dedicated to championing the US green transition. By strategically investing in American innovators, LUSA emphasises companies developing products, technologies, and solutions pivotal to addressing pressing environmental and climate concerns. This ETF encompasses diverse sectors: from renewable energy, hydrogen, and energy efficiency to EVs, advanced battery tech, clean water management, waste solutions and the promotion of a circular economy.

LUSA is aligned with, and invests across the six environmental objectives of the EU Taxonomy for Sustainable Activities: Climate Change Mitigation, Climate Change Adaptation, The Sustainable Use and Protection of Water and Marine Resources, The Transition to A Circular Economy, Pollution Prevention and Control, and The Protection and Restoration of Biodiversity and Ecosystems.

LUSA is multi-sector fund built for especially regional allocators who find it challenging to make use of typically global thematic and/or sustainable strategies. Moreover, LUSA provides a way to invest in the US green transition in a way that offers an impact investment approach as opposed to your traditional MSCI benchmarks with an SRI, ESG, or PAG label on top.

Education Tech and Digital Learning

Adaptability is a crucial aspect of education in today’s rapidly changing world. Innovation and disruption within the EdTech space will undoubtedly help future generations to continuously adapt throughout their careers. Take Microsoft’s HoloLens2 headsets, these enable medical students to virtually observe surgeries, providing an immersive learning experience. Virtual reality, like Mondly VR, helps students practice foreign language skills in real-world scenarios. You also have 3D printing which can be used in engineering departments to encourage intellectual curiosity and imaginative problem-solving. Technology-driven educational innovations are therefore central to nurturing adaptability, curiosity, and creativity in the next generation of leaders, ultimately shaping dynamic and imaginative individuals capable of thriving in a rapidly changing world.³

Circular Economy Enablers

Imperial College London in August released a report titled “Ten insights from industrial ecology for the circular economy” offering critical guidance to policymakers on achieving success in circular economy initiatives. The report stresses the importance of heeding scientific expertise in shaping effective policies for sustainable resource management. In particular, it calls for the adoption of forward-looking assessment methods to gauge the environmental benefits of new technologies.⁴ A global collaboration of researchers from institutions like University College London, Yale University, and Imperial College London came together to produce the report, stressing the need for collaboration between government, industry, and scientists worldwide to achieve sustainable resource management and minimise environmental impacts. In Europe, we have already seen evidence of such collaboration.

The European Union (EU) has enacted several legislative measures to promote the circular economy.

Central to this effort is the Circular Economy Action Plan, adopted in 2020. This plan outlines eco-design requirements, the reduction of single-use plastics, and ambitious recycling targets. Other initiatives include the EU Ecodesign Directive, Single-Use Plastics Directive, Waste Framework Directive, and Extended Producer Responsibility (EPR) schemes, all aimed at fostering sustainable resource management and waste reduction, and The EU Green Deal and Bioeconomy Strategy.

Global Sustainable Infrastructure

In August, we introduced our new SFDR Article 9 Rize Global Sustainable Infrastructure UCITS ETF (NFRA). NFRA, an innovative sustainable ETF, is committed to fostering global infrastructure development that harmonises economic, environmental and social goals. It strategically invests in companies that uphold and enhance the infrastructure of advanced economies, as well as those spearheading vital infrastructure initiatives in emerging markets. Through NFRA, we champion a transition towards a greener, more resilient and inclusive global economy.

NFRA invests across four categories: Transportation Infrastructure, Environmental Infrastructure, Data and Telecom Infrastructure, and Social Infrastructure. These four categories are further sub-divided into 12 sub-sectors: Elderly Homes, Health Care Infrastructure, Waste Management, Water Utilities, Renewable Energy Utilities & Transmission, Telecom Infrastructure, Data Centres, Passenger Transportation, Ports, Airports, Toll Roads, and Freight Rail Transportation.

NFRA is multi-sector fund built for portfolio resilience and counter to a lot traditional thematic and/or sustainable strategies, implements a distinct low volatility rule, the outcome of which is a balanced risk profile over time. NFRA also seeks to pay a stable dividend to investors on a semi-annual basis.

Cybersecurity and Data Privacy

August marked the revelation of a massive cyber-attack. Japan’s National Centre of Incident Readiness and Strategy for Cybersecurity (NISC), itself responsible for safeguarding against cyber threats, fell victim to a suspected Chinese military hack. On August 4, 2023, NISC disclosed a security breach exposing unauthorized access to email conversations and whilst the intrusion began in October 2022 it went unnoticed until June this year! Japan plans to boost its cybersecurity budget tenfold over five years and quadruple its military cyber workforce. Still, this incident may raise concerns among Western allies about sharing sensitive data with Japan, given the presence of Chinese hackers in Tokyo’s defence networks.⁵

Medical Cannabis and Life Sciences

Shares of many medical cannabis companies benefited in August following a proposal by a U.S. health agency to reclassify marijuana as a lower-risk substance, raising hopes once more for federal legalisation. While nearly 40 U.S. states have legalised marijuana in some form, federal progress has stalled, affecting funding sources for the industry. Reclassifying marijuana to Schedule III could attract institutional and strategic investors. One of the big legislative hurdles remaining is the SAFE Banking Act, this holds the key to unlocking cannabis industry banking but has yet to secure Senate approval.⁶

Digital Payment

The global transition to digital payments is not only simplifying our lives by offering convenient, secure and efficient ways to transact but also providing solutions to underserved markets. In India, the introduction of voice-based and offline digital payment methods will bridge the digital divide between rural and urban areas.

The Universal Payments Interface (UPI), launched in 2016, has seen significant growth, with nearly 350 million users making almost 10 billion transactions in August.

However, rural adoption has been limited due to poor internet access and lower literacy levels. To address this, the Reserve Bank of India plans to implement “conversational” payments using AI-based speech recognition, initially in English and Hindi. Additionally, “near field communication” technology will enable offline transactions, expanding digital payments beyond major cities.⁷

Pet Care

The pet care industry received a huge boost from COVID-19 lockdowns but more recently the market has experienced somewhat of a slowdown. Unsurprisingly, this is partly due to pet owners spending less time with their pets post-lockdowns. However, despite an economic slowdown and cost of living challenges, the market remains on a positive growth trajectory as pet owners continue to prioritise spending on their pets. There are four growth areas that are proving particularly resilient. Take humanisation, this involves premium products with human-grade ingredients such as pet snacks and freshly cooked pet food that mimics human food preferences. Health-focused pet care also continues to emerge, with a shift towards preventive healthcare and personalised pet food and supplements containing natural and functional ingredients. Sustainability is also driving innovation in alternative proteins and packaging, with pet owners seeking environmentally friendly options. Brands are even introducing insect-based and plant-based pet food, as well as recyclable packaging. Of course, all of these changing consumer preferences have been catered for by the ever expanding omnichannel approach, combining online and offline sales channels.⁸

Emerging Market Internet and Ecommerce

In China, the latest economic indicators fell short of expectations. The Consumer Price Index (CPI) turned negative in August, registering a year-on-year decline of -0.3%, while the Producer Price Index (PPI) continued to deflate for the tenth consecutive month. Additionally, retail sales grew by a mere 2.5% year-on-year, well below the anticipated 4.5%. This reflects the lack of household confidence in the region and places further doubt on a timely economic recovery. Chinese investment data also reflects a lack of confidence among businesses, with private investment shrinking by 2.3% year-on-year in August. The troubles faced by major property developers like Country Garden and Evergrande in August further underscored the weaknesses in the real estate market. In response to these challenges and the looming threat of deflation, the People’s Bank of China reduced interest rates twice in August. However, credit demand has yet to pick up. Towards the end of the month, Beijing implemented several measures to bolster financial markets, including halving the stamp duty on stock trading. Despite these efforts, the Renminbi depreciated by 1.6% against the US dollar during the month, while the CSI 300 index plummeted by 6.2%. ⁹

References

Rize ETF, “WillTheEuLoosenRulesForGene-EditedCrops?”, August 2023. Available at: https://rizeetf.com/2023/08/will-the-eu-loosen-rules-for-gene-edited-crops/

Reuters, “Japan to release Fukushima water into ocean from Aug. 24”, August 2023. Available at: https://www.reuters.com/world/asia-pacific/japan-release-fukushima-water-into-ocean-starting-aug-24-2023-08-22/

HEPI, August 2023.

Circular Online, “Imperial College London publishes circular economy guidelines”, August 2023. Available at: https://www.circularonline.co.uk/news/imperial-college-london-publishes-circular-economy-guidelines/

Financial Times, August 2023.

Yahoo Finance, “Canadian pot stocks jump on reports that U.S. may ease cannabis restrictions”, August 2023. Available at: https://ca.finance.yahoo.com/news/canadian-pot-stocks-climb-reports-163137211.html?guccounter=1