The most recent ETF to be launched and the first of 2017 is a new globally focused fund offered by Betashares, the Global Sustainability Leaders ETF (ETHI) has a focus on companies which are ‘climate change leaders’ and are not ‘engaged in activities deemed inconsistent with responsible investment considerations’. In other words it is has an ethical and environmental sustainability focus.
We had a look at Ethical ETFs a few months back. Until now there were 7 ETFs with an ethical focus, most which are offered by UBS, and one offered by Russell. One of the challenges we uncovered in that post is there are numerous definitions of what an ethical option is. For example, the UBS options exclude tobacco and weapons manufacturers only, leaving miners, gambling companies and many other marginal ‘ethical’ industries in the mix. The Russell option (RARI), an Australian focused ETF excludes mining companies with environmental concerns and companies with a focus on gambling.
Betashares have upped the ante with their Global Sustainability Leaders ETF, with the index screening for global companies (excluding Australia) that are at least 60% more carbon efficient than the average in their industry. They then screen for companies involved in what they deem unethical industries which include the likes of fossil fuels, gambling, live animal exports, tobacco, weapons and junk food. The remaining companies are then ranked and the fund invests in the 100 largest companies by market capitalisation. The index ensures that no individual company can make up more than 4% of the index. The result is a souped up ethical ETF. It is actually only part ethical but also a large cap environmentally focused ETF with a slight equal weight overlay.
The fund holds many familiar names, with the top 10 holdings including Apple, Facebook, Intel, Visa, 3M and Mastercard. Interestingly only two of the top 10 companies (Apple and Facebook) are in the top 10 companies in the world, meaning somewhat concerningly that the other 8 did not meet the screening criteria.
The fund has a high weighting to tech, with 32.5% of the portfolio currently held in information technology companies. Some of the other sectors heavily represented in the index include consumer discretionary (20.5%) and healthcare (19.5%).
We mentioned above the alternative ethical ETFs, all of which can be found in the ETF Watch fund database. ETHI however, is the only ETF we know of with a strong environmental overlay, with the majority of the other ethical ETFs ignoring this component which is becoming so important for many investors. For investors who are not interested in ethical or sustainable ETFs but are simply looking for a large cap global ETF, there’s a few options, including the iShares Global 100 ETF (IOO).
ETHI follows the Nasdaq Future Global Sustainability Leaders Index and has management costs of 0.49% pa. It is due to pay dividends on a semi-annual basis. Betashares have prepared a fact sheet and a video with the specifics of the fund.
This post was prepared with publicly available information available from Betashares. ETF Watch did not receive payment from Betashares for this post, nor endorses the merits of the fund. We recommend investors seek professional advice before investing in this fund.