Green Commodity ETF Launches Into Hostile Market

Asset manager USCF Investments is taking a contrarian tack with the launch of a new commodity fund with the theme of environmental sustainability. 

The USCF Sustainable Commodity Strategy Fund (ZSC), launched Wednesday, has lower emissions than a typical fund by weighting commodities whose production emits less carbon. Combined with a lack of fossil fuel holdings, the fund has 80% fewer carbon emissions, according to Kevin Baum, chief investment officer of USCF Investments. 

The launch comes at a time when assets are flowing out of funds with a focus on environmental, social and governance themes, as conservative politicians have also been highly critical of the strategy. U.S.-listed commodity funds haven’t fared any better, posting 11th straight month of net outflows in July.  

“We’re not trying to time the launch,” Baum said. “We’re looking to the long term.” 

ZSC invests equally in three types of assets., relating to agriculture, renewable energy and minerals used for electricity production. It also aims to have net-zero carbon emissions for its portfolio as a whole. 

The holdings are eclectic, with the agriculture portion investing in agricultural commodities like wheat and soy futures. For renewable energy, the fund invests in derivatives that track carbon offset markets and renewable energy credits issued by governments, as well as investing in the stocks of renewable energy companies. The mineral strategy invests in derivatives of commodities like lithium and copper. 

While the fund is small, it is gaining exposure to commodities in the last category by investing in the USCF Sustainable Battery Metals Strategy Fund (ZSB), which it launched this January. Fees for ZSB are not charged for the allocation. 

ZSC comes with an expense ratio of 0.59% after a 0.2% fee waiver that is guaranteed until at least August 2024, but the fee may jump to 0.79% if the waiver is not renewed. 

The reason for the inclusion of agricultural commodities, which are not a major factor in the transition to clean energy, is to try to provide a significant correlation with a broad commodity portfolio.  

Baum declined to provide the exact correlation, but said that it is “well, well north of 50%.” 

Contact Gabe Alpert at [email protected]