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Arne Noack, DWS
Arne Noack, DWS

DWS focuses on ‘stories that make sense’ to launch thematic ETFs

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July saw the launch of DWS Group’s Xtrackers US Green Infrastructure Select Equity ETF (NASDAQ: UPGR) designed to offer both short- and long-term investment opportunities as green infrastructure projects continue to develop across the US. 

The firm wrote that there is a wide range of subthemes across green infrastructure that investors could identify as opportunities, including renewable energy, green fuels, electrification of mobility sector, environmental services and pollution control.

The US’s USD1.2 trillion Infrastructure Investment and Jobs Act contained an estimated USD550 billion in new spending, which the firm says has the potential to create multiple opportunities for investors. The Inflation Reduction Act has just enjoyed its first birthday and has led to USD271 billion in investments made into renewable energy projects nationwide. 

With the IRA and Infrastructure Investment and Jobs Act together providing up to USD370 billion in federal funding during the next five to 10 years, investors have the opportunity to capitalise on the US’s commitment to revamping infrastructure, the firm says.

Arne Noack, head of systematic investment solutions, Americas, at DWS Group, explains that the firm’s move into thematic ETFs, of which UPGR is a prime example, was to start with stories that made sense and were relevant for investors. 

“There were lots of statistics that reflect that the US had demonstrated the need for investment in infrastructure,” Noack says. “The policy by its nature is long term but it’s been quite transformative for US economy and investors needed a route to participate in the development of the US infrastructure, especially in terms of topics like energy transitions which can be controversial but are also needed.”

Earlier this year, DWS enjoyed the largest ETF launch of all time in the US, Xtrackers MSCI USA Climate Action Equity ETF (NYSE: USCA), with USD2 billion flowing in on the first day of trading from Finnish pension fund, Ilmarinen. 

But Noack is clear that these latest ETFs demonstrate a further commitment to thematic ETFs from DWS Group, beyond sustainable products, which, earlier this year, came with the additional launch of Xtrackers Semiconductor Select Equity ETF (NASDAQ: CHPS) and Xtrackers Cybersecurity Select Equity ETF (NASDAQ: PSWD).

“It’s taken a while for us to consider what themes we wanted to make investable,” Noack says, observing that thematic ETFs are never clear cut as themes can be ‘sliced and diced’ in a number of ways.

“The thematic ETFs we have launched represent three themes that we feel are super pertinent,” he says, adding that their thematic ETFs are competitively priced and cheaper than others in the market.

Green infrastructure as a story has been under-represented in investor portfolios, Noack says. “By and large our investors are interested and within the financial adviser community that works with us, the awareness around these topics and the desire to educate themselves is every higher now.”

Noack notes that the ESG acronym had stirred up controversy in the past in the US and to some degree in the UK: “But we don’t see these thematic funds as ESG, more thematic,” he says. “The ESG filters are very light and designed to make sure that we don’t have any offenders with regards to certain criteria. With the infrastructure-oriented investment strategy, the main object is the sustainable provision of power for the future which is linked to the competitiveness of the US economy, ensuring it is on a good sustainable footing.

“There are lots of intricacies talking about power provisions, moving from fossil to wind or solar and with each move comes a new challenge for the grid and the storage of power.”

Noack says that from his perspective, we are only at the beginning of a level of consciousness of what it takes to maintain the current lifestyle and living standards in the industrialised nations of the US and Europe.

“The acts that have been put in place are designed to sustain a longer-term development of the infrastructure,” he says, “and we are only at the beginning.”

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