What is the best ETF to invest in the circular economy?

The current economic landscape is facing unprecedented challenges, from growing concerns about climate change to the need to reduce resource waste. In this context, the circular economy is emerging as a revolutionary solution, transforming the way we produce, consume, and invest. If you are interested in the sector and want to explore the opportunities offered by ETFs in the context of the circular economy, this article will help you go into more detail about the products.

We will discover two key ETFs, the BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF USD and the VanEck Circular Economy UCITS ETF A, examining their liquidity, associated costs, and outlook. First, however, let’s see what is meant by "circular economy", in order to fully understand the topic.

Circular Economy: An Innovative Model for a Sustainable Future

The circular economy is an economic model designed to minimize the waste of natural resources and promote environmental sustainability. Instead of following the traditional linear model of the economy, which involves the extraction of resources, the production of goods, the use of those goods, and finally the disposal of waste, the circular economy aims to create a closed loop in which products, materials, and resources are used efficiently and renewablely.

Key elements of the circular economy include:

1. Sustainable design: Products are designed with their full lifecycle in mind, with the goal of maximizing durability, facilitating repair and recycling, and minimizing waste.
2. Reuse and Repair: Promotes extended use of products through reuse and repair rather than simply disposal when an item becomes defective.
3. Recycling: Materials are recovered and recycled to create new products, thus reducing the need for virgin resource extraction.
4. Energy from renewable sources: We try to power the entire production process with energy from renewable sources to reduce greenhouse gas emissions.
5. Service economy: Instead of owning products, access to services or goods is promoted through sharing models, such as rental or leasing.

The main objective of the circular economy is to reduce environmental impact, limit the consumption of non-renewable resources, and reduce waste production. This approach also aims to stimulate innovation and create economic opportunities, as repair, recycling, and sustainable resource management become growth sectors.
The circular economy has become increasingly relevant in recent years due to growing concerns about climate change and the need to address the depletion of natural resources. Many companies, governments, and organizations are adopting circular economy principles as part of their strategies for a sustainable future.

ETF for the Circular Economy: who is the winner?

Investment in the circular economy is at the forefront of the challenge for a more sustainable future. In this comparison of two key ETFs, we will find out which one could emerge as the clear winner.

1. BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF USD: is an ETF that offers investors the opportunity to participate in the performance of leading companies in the circular economy. This ETF tracks the ECPI Circular Economy Leaders Equity Index, which includes 50 global stocks selected based on ECPI parameters, with equal weighting to avoid sector concentration. The full physical replication structure ensures that the ETF actually holds all the shares of the underlying index. With a TER of 0.30% per annum, this ETF offers an acceptable cost-efficiency ratio for investors interested in the circular economy.

2. VanEck Circular Economy UCITS ETF A, on the other hand, tracks the performance of the MVIS Global Circular Economy ESG index, which includes global companies engaged in the circular economy and meeting ESG criteria. The ETF uses full physical replication, with a slightly higher TER of 0.40% per year than its competitor. This ETF was recently launched and has small assets under management.

Liquidity plays a major role in the comparison between the BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF USD and the VanEck Circular Economy UCITS ETF A. It is important to note that the VanEck ETF has very low trading volumes, which leads to less liquidity, potentially making it difficult to buy or sell shares without significantly affecting the price. This becomes particularly relevant when there are large trades or when a highly liquid market is required to trade efficiently. The BNP Paribas ETF, on the other hand, offers a relatively better liquidity outlook, which could be advantageous for those looking to trade with greater agility.

Furthermore, it is appropriate to consider the TER (Total Cost Rate), which represents all the costs associated with investing in the ETF in the long term. In this context, the BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF USD has a TER of less than 0.30% per annum, while the VanEck Circular Economy UCITS ETF A has a slightly higher TER of 0.40% per annum.

Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.

Original article published on Money.it Italy 2023-09-07 19:00:00. Original title: Qual è il migliore ETF per investire nell’economia circolare?