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This ETF is designed to hedge against the impact of natural disasters


As El Niño ends and La Niña begins, the US is set for one of the hottest summers on record, with severe droughts and increased hurricane activity expected. The upper midwest and north-east of the US has been experiencing a heatwave this week, while Texas and northern Mexico have been hit by a tropical storm.

This could soon be business as usual, the so-called ‘extreme’ weather events becoming the norm. For investors this could prove a major source of concern in years to come.

Mark Zandi, chief economist at Moody’s Analytics has projected that “physical risks” from disasters such as hurricanes, flooding, and wildfires will be the biggest economic cost over the next 20 to 30 years. Famed economic forecaster Nouriel Roubini, who correctly called the 2008 Great Financial Crisis, has noted that operations could be impacted, and economic activities could be damaged from rising sea-levels, flooding, hurricanes, typhoons, wildfires, and droughts.

How can you protect your portfolio from disasters?

Andrew Chanin, CEO of ProcureAM and issuer of the Procure Disaster Recovery Strategy ETF (FIXT), believes this shift underscores the urgency for investors to prioritize disaster risk reduction and recovery-focused companies in their portfolios.

The Procure Disaster Recovery Strategy ETF (aka FIXT) focuses on those firms that are involved with disaster recovery and prevention. As of the quarter ended 31 March of this year, FIXT has seen a 20.5% annual growth rate (it was launched in 2022).

With La Niña starting, above-average temperatures and dry conditions will dominate, particularly in the western US, increasing the risk of heat-related disasters. Chanin notes that strategic investments in companies focused on mitigating these risks are crucial.

Surge in hurricanes is forecast

In 2023, the United States’ billion-dollar disasters included four flooding events, two tornado outbreaks, two tropical cyclones, seventeen severe weather/hail events, one drought and heatwave event, one wildfire, and a major winter storm.

Additionally, with El Niño no longer suppressing storm activity, a surge in hurricanes is anticipated, putting coastal regions at greater risk and highlighting the need to invest in firms that enhance infrastructure resilience and provide emergency response services.

Companies like Eaton NYSE:ETN, Home Depot NYSE:HD, and Generac NYSE:GNRC are leading examples of those addressing these challenges, Chanin says. Eaton focuses on power management solutions, Home Depot provides essential materials for rebuilding and fortifying homes, and Generac specializes in backup power generation, all critical in disaster response and recovery.

By investing in such companies, investors support economic stability and climate change adaptation efforts, ensuring communities can better prepare for and recover from natural disasters. The fund closely follows stocks and sectors tracked by the VettaFi Natural Disaster Recovery and Mitigation Index.

The fund has a strong weighting towards stocks in the industrials sector at 62%, with 14% in consumer discreationary. The bias is heavily towards US stocks, at 57%, followed by UK at 10% and the Netherlands at 6.6%. There is very limited Asia exposure outside Hong Kong, which accounts for 2.9%.

At time of writing the top five holdings in the FIXT ETF were:

  1. NASDAQ:NVDA NVIDIA Corp (3.1%)
  2. NYSE:REVG REV Group (3.04%)
  3. LON:WG. John Wood Group (3%)
  4. [HKG: 0257] China Everbright Environment Group (2.88%)
  5. NYSE:GNRC Generac Holdings (2.74%)

Admittedly the ETF was launched after the pandemic, so it is harder to evaluate how it would cope in a major black swan like we saw in 2020.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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