Global warming is now a blazing issue, raising panic alarms from pole to pole. The louder the grumble of panic is, the more human awareness toward protecting the environment awakens. Probably this is why a single day has been designated to commemorate the worth of environment protection. The day, touted as ‘World Environment Day,’ has been celebrated for the last 43 years on June 5.
This might sound as a social alert, but the investing world also gives kind attention to it. One can have a fair understanding of this intention looking at different areas of the ETF industry. There are clean energy ETFs, low carbon ETFs and even environment-oriented ETFs at investors’ disposal. There are plenty of stock options as well, though ETFs are seemingly better choices as its basket approach minimizes security-specific risks.
At this opportune moment of World Environment Day, we would like to highlight several environmentally sound ETFs that investors might take special note of.
MSCI USA ESG Select ETF (KLD), worth $341 million in assets, measures the equity performance of large stocks that have positive environmental, social & ESG characteristics relative to their industry & sector peers and in relation to the broader market, while exhibiting risk & return characteristics similar to the MSCI USA Index.
The fund does not put more than 4.75% of its total assets in a single stock. 3M CO, Nextera Energy Inc and Apple Inc. are its top-three holdings. Information Technology (21.7%) is its top sector weight. For this exposure, the fund charges 50 bps in fees. The fund is up 2% this year.
EcoLogical Strategy ETF (HECO) looks to target ecologically focused companies. These companies have aligned their operations efficiently in line with the prevailing environmental statute and environmentally sound consumption pattern. These firms also invest more in environmentally viable projects. This $7.1 million-ETF charges 95 bps in fees. Apple (4.97%), Google (3.19%) and Borg-Warner (3.19%) are its top-three holdings. HECO is also up 1.9% so far this year.
Low Carbon ETFs
Building a ‘low-carbon’ economy and battling against unsafe outcomes of greenhouse gases in the atmosphere have become a global errand lately. China has already announced that it seeks to make a pollution free environment and even inked a deal to lower carbon emissions. Also, president Obama has always been dynamic in clearing up carbon pollution. As a result, low-carbon ETFs have caught investors’ attention recently (read: State Street Goes Green with New Low Carbon ETF).
The SPDR MSCI ACWI Low Carbon Target ETF (LOWC) has become a $92 million ETF within just a few months of its launch. This 1,270 stocks-ETF looks to track the stocks from developed and emerging markets that discharge lower carbons. The fund charges only 20 bps in fees.
Here also, Apple (2%) takes the top spot followed by Microsoft (0.97%) and General Electric (0.80%). The fund is heavy on the U.S. with half of the total exposure, while Japan (7.9%) and the U.K. (7.2%) take the next two spots. LOWC is up over 5% so far this year.
There is yet another global ETF with reduced carbon exposure namely, iShares MSCI
ACWI Low Carbon Target ETF (CRBN). The 956-stock fund charges 20 bps in fees a year from investors. The fund has amassed over $165 million in assets, having made its debut in December 2014. Exposure is quite similar to LOWC as Apple (2.01%), Microsoft (0.97%) and Johnson & Johnson (0.77%) are top three holdings. Its geographic exposure is also pretty much like LOWC (read: 5 Very Successful ETF Launches of 2014).
Clean Energy ETFs
It would be imprudent if we do not discuss clean energy ETFs today, especially given its recent boom. While a moderate recovery in the oil price helped the clean stocks to some extent, Barrack Obama’s ‘Climate Change Action Plan’ was instrumental in driving up the sector from last year’s lows (read: Green ETFs & Stocks for Earth Day).
While most clean ETFs including iShares Global Clean Energy ETF (ICLN), PowerShares Global Clean Energy Portfolio (PBD), Market Vectors Global Alternative Energy ETF (GEX) and NASDAQ Clean Edge Green Energy Index Fund (QCLN) gave double-digit returns this year, we detailed the top-performer, i.e., ICLN in this piece.
ICLN tracks the S&P Global Clean Energy Index with 46 holdings and an asset base of about $95.8 million. ICLN has added the most this year in the clean energy space, having gained about 24%. In terms of geographical breakdown, China leads the list with over two-fifth of exposure, while the U.S. holds the second spot with one-fifth of the total basket. The fund charges investors 48 basis points a year in fees for the exposure.
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