It’s official, ethical investing is hot. Previously relegated to the fringes of investing, more and more investors are looking to invest ethically. We see what ETFs are available on the ASX which have an ethical bias and look at what ethical really means.
Update 20/11/2018 – We’ve updated this post with Vanguard’s new Ethically Conscious International Shares (VESG) ETF and Ethically Conscious Global Bond (VEFI) ETF.
Update 7/02/2018 – We’ve updated this post with Betashares new Australian Sustainability Leaders ETF (FAIR) which was recently launched.
Update 8/03/2017 – We’ve updated this post with Betashares new Global Sustainability Leaders ETF (ETHI) which was recently launched.
Once relegated to the fringes of investing and considered an option for those who want to put their conscious in front of investment returns, a changing mindset of investors has moved the principles of ethical investing to the forefront. There’s now a number of ethical ETFs available on the ASX, below we take a look.
One of the biggest problems with funds designed to be ethical in nature, is every investor’s ethical boundaries are likely to differ. What’s unethical to one investor may be perfectly ethical to another. Tobacco, weapons manufacturers, alcohol, gambling, oil, mining, Woolworths because they sell cigarettes… where do you draw the line? The Responsible Investment Association Australia’s (RIAA) Responsible Investment Benchmark Report 2016 listed tobacco, alcohol, weapons and gambling industries as the most likely to be excluded from portfolios for ethical reasons.
UBS are the main manager offering Ethically tilted ETFs on the ASX, launched in early 2015, they offer six funds with an ethical bias. The UBS companies exclude companies involved in Tobacco or the production of controversial weapons, meeting two of the popular criteria supported by the RIAA and perfect for Mr Turnbull. The issue with only excluding tobacco and weapons manufaturing is there are very few companies involved in this activity, for example, in Australia none of these companies make up the ASX 200, so the UBS Australian ETF is effectively just a regular market cap weighted ETF.
Russell Investments also offers a high dividend fund with a weighting to companies that demonstrate positive environmental, social and governance characteristics. Russell’s index is broader reaching than UBS, with a number of mining companies excluded because of environmental concerns and companies with more than 10% exposure to gambling.
Betashares Global Sustainability ETF (ETHI) has a global focus with a positive screener meaning companies must be ‘climate change leaders’ to make the list, whilst also excluding companies involved in things like fossil fuels, gambling, tobacco, junk food and weapons. Betashares also has an Australian focused version of the fund, FAIR which has the same negative screeners as ETHI, but with slightly different positieve screeners.
Vanguard have two ethically tilted ETFs available, the Vanguard Ethically Conscious International Shares Index ETF (VESG) and the only fixed income Ethical ETF, the Vanguard Ethically Conscious Global Aggregate Bond Index (Hedged) ETF (VEFI). Vanguard takes a middle ground between the UBS options and Betashares options, excluding all of the sectors of UBS, but also adding tobacco and controversial weapons to the mix.
The funds on offer are listed below:
|Ticker||Name||Management Fee||Market Cap (Nov 18)|
|UBA||UBS IQ MSCI Australia Ethical ETF||0.17% pa||$182m|
|UBE||UBS IQ MSCI Europe Ethical ETF||0.40% pa||$10m|
|UBJ||UBS IQ MSCI Japan Ethical ETF||0.40% pa||$4m|
|UBP||UBS IQ MSCI Asia APREX 50 Ethical ETF||0.45% pa||$10m|
|UBU||UBS IQ MSCI USA Ethical ETF||0.20% pa||$7m|
|UBW||UBS IQ MSCI World Ex Australia ETF||0.35% pa||$33m|
|RARI||Russell Australian Responsible Investment ETF||0.45% pa||$93m|
|ETHI||Betashares Global Sustainability Leaders ETF||0.59% pa||$235m|
|FAIR||Betashares Australian Sustainability Leaders ETF||0.49% pa||$179m|
|VESG||Vanguard Ethically Conscious International Shares Index Fund||0.18% pa||$1m|
|VEFI||Vanguard Ethically Conscious Global Aggregate Bond Index Fund||0.26% pa||$1m|
Of course the above UBS funds suit if excluding tobacco and controversial weapons meet your ethical investing criteria, however as we mentioned this may mean simply investing in the broad index if that index has very little exposure to either industry.
If you would prefer to broaden the net to industries like alcohol, gambling and environmental issues, RARI may be more suited to you, but only for exposure to Australian companies, and it also has higher management fees. FAIR adds a positive screener to ensure it includes higher weighting to ‘sustainability leaders’.
If you wish to cast your ethical net more broadly outside of Australia and add the positive environmental focus screener, ETHI may be the ETF you are seeking. If keeping costs to a minimum is the most important, the Vanguard options may occupy your ethical investing sweet spot.
This article is general in nature and should not be considered financial advice. We recommend investors seek professional financial advice before investing.