ETF Watch: Janus Henderson's Tim Gerrard names the top 3 ASX stocks in his new carbon-focused fund

Janus Henderson launches JZRO fund on the ASX
The fund focuses on the energy transition
Portfolio manager Tim Gerrard tells Stockhead his top 3 ASX stocks in the fund

Fund manager Janus Henderson (ASX:JHG) has just launched a new fund that positions itself for the transition to a low-carbon future.

The new Net Zero Transition Resources Active ETF (ASX:JZRO) provides exposure to a diversified portfolio of global natural resources companies operating in the materials, energy, agricultural, industrial, and utility sectors.

The fund typically holds between 25 to 50 companies diversified by sector, market capitalisation and country.

The launch comes as investors navigate the market impacts of the energy transition, seeking to take advantage of investment opportunities that come as a result of global decarbonisation efforts.

According to recent Morningstar research, sustainable funds now hold $44.3 billion in Australian assets, and have more than doubled since 2019.

“We are witnessing the significant positive economic impacts of an energy transition amid a global decarbonisation effort,” said Janus’ portfolio manager, Tim Gerrard.

“More than 120 countries have pledged to reach Net Zero greenhouse gas emissions by around 2050, and are supported by the commitments of more than 100 regional governments, 800 cities and 1500 companies, and this is changing almost daily,” he added.

What are the top 3 ASX stocks in the fund?

The JZRO fund has a wide range of stocks that benefit from the trend toward decarbonisation.

These include the enablers: renewables and hydrogen that replace fossil fuels, as well as sustainable agriculture, the circular economy, and forestry.

As a global strategy, the majority of the fund’s holdings are in North America (as at 30 March 2022), but it’s also invested in the ASX.

Some of the fund’s top holdings on the ASX include:

Champion Iron (ASX:CIA)

Gerrard told Stockhead that it’s difficult for the world’s steel industry to cut its emissions quickly.

But already, there is an obvious trend that sees the old technology like blast furnaces being phased out and replaced by production from EAFs (Electric Arc Furnaces), or ‘mini mills’ as they are referred to in the US.

“As the EAF sector moves into high value flat steel production, it will require high quality scrap and scrap substitutes,” explained Gerrard.

“This is where Champion Iron comes in, as it positions to introduce higher grade iron concentrate amenable to the US mini mill market. Higher prices and margins should result from this.”

“And from this initiative, CIA’s production will help its customers reduce greenhouse gas emissions by 10Mtpa, versus production from legacy steel making techniques.”

IGO Ltd (ASX:IGO)

Having divested its gold operations in April 2021, IGO is focused on the metals required for electric vehicle batteries – mostly nickel and lithium, but also copper.

Gerrard says IGO’s recent acquisition of the Tianqi Lithium JV places it at the forefront of the world’s best deposits.

And that he says, will help the company to underwrite a 10-fold increase in lithium demand over the balance of the decade.

“We suspect IGO’s valuations will continue to rise as the market recognises the need for higher prices to accelerate new production into the market,” Gerrard said.

“We also like the strong ESG commitments by the company including increased use of renewables at the mine sites.”

Costa Group (ASX: COS)

Gerrard believes that Costa is an example of a company that highlights the benefits from large scale sustainable agriculture in healthy fruit and vegetables.

It’s a business that does have to fight the vagaries of weather and pests and disease. And over the last two years, following a run of downgrades, this has proved difficult according to Gerrard.

“Nonetheless, we like the diversity of not just the product range such as tomatoes, avocados, mushrooms, berries and citrus, but also the geographic diversity across Australia and also internationally,” he said.

“Strong growth in these categories has only been enhanced post-Covid. There are new opportunities in snacking varieties and e-commerce, and increased exports as policy allows.

“All of which is underpinned by a sustainable environmental footprint versus the carbon emissions of the meat industry, for instance,” he added.

Gerrard says that Costa has the scale, innovation and capital to grow into the undisputed leader of Australian horticulture, and in select instances internationally.