Kinetics Small Cap Opportunities Fund may not appeal to sustainability-conscious investors.
This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar US Equity Small Cap category, earning it the highest Morningstar Sustainability Rating of 5 globes. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
The fund has an asset-weighted Carbon Risk Score of 3.74, indicating that its current equity and/or bond holdings have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets.
One potential issue for a sustainability-focused investor is that Kinetics Small Cap Opportunities Fund doesn’t have an ESG-focused mandate. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. Currently, the fund has 60.27% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Small Growth category has 4.48% exposure to fossil fuel-related businesses. Companies are considered involved in fossil fuels if they derive at least 5% of their revenue from thermal coal, oil, and gas.
The fund exhibits moderate exposure (2.43%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that may negatively affect stakeholders, the environment, or the company’s operations.