In a sign the world is starting to heal, the so-called anti-woke exchange-traded fund movement appears to loosening up a bit. It no longer seems to spew so much vitriol toward "ESG" efforts to promote green energy and political correctness.
Proof of this comes in the form of a new ETF launched by $6.7 billion investment advisor Horizon Kinetics. Gone are the hyperbolic statements about political ... incorrectness. Instead of a fund promising to either soothe your hydrocarbon-fueled guilt or send those pesky environmentalists packing, Horizon Kinetics presents a straightforward and realistic take on both the global dependence on hydrocarbons and the steps we are taking to wean ourselves from them.
Launched Feb. 21, the Horizon Kinetics Energy and Remediation ETF (NVIR) is straightforward in its views of the current state of energy production and consumption in the world, the state of capital expenditure spending in the energy sector (lower and continually under pressure), and of non-energy uses for hydrocarbons, listing everything from antihistamines and aspirin to soft contact lenses and replacement heart valves.
The fund is billed as an actively managed product, so let's turn to the prospectus to see how well the security selection process lines up with the stated goal of the fund. The prospectus states that the fund will be "investing primarily in securities of companies that are expected to benefit, either directly or indirectly, from the increasing focus on climate and environmentally sensitive carbon-based energy production."
Focus companies include traditional energy companies as well as companies that are working on what the firm describes as "remediation companies." These companies produce goods and provide services that seek to counter the negative environmental effects of energy production.
Energy companies include onshore and offshore oil and gas producers, owners of oil and gas pipeline networks, and oil and gas exploration firms. Also included in this definition are royalty companies that own but don't operate assets.
Examples of Remediation Companies include companies that produce or are developing enhanced water meter and filtration/treatment systems, technologies to capture and store carbon dioxide or other types of harmful emissions, products or services that enable the production or consumption of hydrocarbons in a more efficient and/or environmentally friendly manner, and finally, have developed or are developing advanced systems and technologies in the hydrocarbons industry that are currently not in use.
Once these broad selection criteria have been met, the team gets to work. While the adoption of this targeted focus reads to me to be the traditional "Top Down" part of the analytical process, the "Bottom Up" part happens during the final security selection process. The language here is fairly generic and doesn't give away any particular element of "secret sauce" -- except to essentially say that the team knows what it's looking for and will take action when they see it. The sell discipline as outlined is straightforward as well, stating that they expect to sell portfolio holdings when it is determined they no longer fit the investment thesis or are no longer attractively valued.
While the fund is billed as having a target holding count of 30 to 60 names and is mildly concentrated, it also goes on to position itself as providing all-cap exposure to investors.
Looking through the latest holdings file, I see 37 names -- a mix of oil majors, like ConocoPhillips (COP) , Occidental Petroleum (OXY) ; exploration and production (E) companies like Diamondback Energy (FANG) , and Pioneer Natural Resources (PXD) ; and some royalty trust names like Texas Pacific Land Corp (TPL) , and Permian Basin Royalty Trust (PBT) . Remediation companies are prevalent as well, with the environmentally repositioned oil services company Schlumberger (SLB) as well as a number of names I'm used to seeing in ESG-branded funds like Ecolab (ECL) , Idexx labs (IDXX) , and Xylem (XYL) .
NVIR sports an 85-basis point expense ratio, so a shareholder with $1,000 invested over a calendar year would pay $8.50 in fees over that period.
Wrap It Up
NVIR makes a good case for its investment strategy and approach, does a good job describing its security selection focus, and, based on a review of current holdings, is following up on what it says it will do. Further, it seems the only thing Horizon wants to "own" is companies that are generating profits. What's that someone said about good investing should be boring?