Hedge fund options bets may predict green equities performance
If you want to know how your green stock portfolio is likely to perform next quarter, you should take a look at hedge funds’ options bets.
That’s according to a newly published academic paper which looks at a decade’s worth of data from more than 1,900 hedge fund firms through 2022.
A key finding of the study is that the buildup of hedge fund managers’ put and call options on a given green equity can be used to “predict the stock’s future returns,” George Aragon, a professor at Arizona State University and a co-author of the paper, said in an interview.
The analysis feeds into a wider debate around green investing strategies, which have delivered mixed results in recent years. The S&P Global Clean Energy Index fell more than 20% last year as the impact of higher interest rates pummeled capital-intensive green projects. This year, it’s down another 12%. The S&P 500, by comparison, has gained about 30% since the beginning of 2023.
High-profile Republicans have seized on such data to attack green investing as a dereliction of a portfolio manager’s fiduciary duty, leading to legal threats and outright bans on the wider environmental, social and governance investing movement. Meanwhile, hedge fund managers are increasingly incorporating ESG metrics in their investments, according to research by analysts at UBS Group AG.
Against that backdrop, the hedge fund industry’s approach to green investing is of particular interest. The authors of the paper, titled Are Hedge Funds Exploiting Climate Concerns?, posit that hedge funds have no “nonpecuniary preferences,” meaning their green bets are only made with a fiduciary goal in mind.
The study found that hedge funds are generally better than the wider market at predicting changes
Read more on investmentnews.com
