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Oppenheimer to Add Revenue-Weighted Feature to ESG ETFs

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The socially responsible investment theme has been catching investor eye. Companies that focus heavily on environmental, social and governance (ESG) practices are enjoying high demand as evident by the recent euphoria among issuers to launch or file ETFs based on the ESG concept (read: Sustainable ETFs Gather Momentum: What's Behind the Surge).

Renowned issuers like iShares, Barclays and ALPS have already made their presence felt in this category. Carried away by this emerging trend, Oppenheimer recently filed for two ESG ETFs, but with a tweak that focuses on revenues along with ESG factors.

Ticker codes and expense ratios of the funds haven’t been disclosed yet. Below we detail the proposed funds:

Oppenheimer ESG Revenue ETF

The fund looks to track the performance of the Oppenheimer Revenue Weighted ESG Index. The index picks companies from within the benchmark Index, i; e; the S&P 500, with solid ESG features. Then, the underlying index seeks to re-weight those companies as per their revenues earned, according to the prospectors. The underlying index is reconstituted quarterly.

Oppenheimer Global ESG Revenue ETF

The investment technique is the same as above, but the benchmark index in this case is MSCI All Country World Index. While the above-mentioned fund looks to offer exposure to the U.S. market, this one intends to deal with the global market.

How Does These Fit in a Portfolio?

Equities that are associated with social factors like low carbon emissions and righteous business practices come under the socially responsible theme. ESG investing has been on the rise lately.  

As per the latest data by Morningstar, 70% of all investors are interested in socially responsible investing, while more than 80% of millennials seek to go socially responsible on investment decisions.

And attaching the revenue-weighted factor with ESG score seems to be a great endeavor. This is especially true as revenues speak more explicitly about a company’s health than earnings or market cap. But many companies resort to accounting tricks to inflate earnings or attain earnings growth through cost containment or lower interest expense.

Revenue is also a better measure than market cap. So, investors seeking exposure to strong companies may find these products intriguing (read: Best ETFs of July).

Competition

Though Oppenheimer planned a unique theme by incorporating this revenue angle in its ESG ETFs, the space is getting crowded lately. Some of the top-grossing ESG ETFs are iShares MSCI KLD 400 Social ETF (DSI - Free Report) , SPDR SSGA Gender Diversity Index ETF (SHE - Free Report) , iShares MSCI ACWI Low Carbon Target (CRBN - Free Report) ,SPDR S&P 500 Fossil Fuel Free ETF (SPYX - Free Report) and Global X Conscious Companies ETF (KRMA - Free Report) (read: July ETF Asset Report: U.S. Tops, Europe Flops).

Each of these products has some uniqueness and charge in the range of 20 bps to 50 bps annually. So, to make a killing, the planned Oppenheimer funds must charge competitively.

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