Ethical concerns are an increasingly important investment consideration for Australian investors. Ethical investing generally involves trying to invest in companies that align with the investor's ethical ideology. An example is avoiding so called 'sin stocks', that is, companies involved in making tobacco, alcohol, gambling and firearms.
Positive and negative screens can be used to assess shares from an ethical viewpoint. Negative screens screen out shares based on ethical considerations while positive screens preference shares based on ethical considerations.
The responsible investment market grew by 13% in 2018 to $980 billion, representing 44% of a total $2.34 trillion in assets under management in Australia. Here we take a look at 2 ETFs designed with ethical investors in mind.
Ethical ETFs
The Betashares Australian Sustainability Leaders ETF (ASX: FAIR) provides exposure to a portfolio of companies screened to preference businesses engaged in sustainable business practices and avoid those engaged in activities deemed inconsistent with responsible investment considerations. The ETF returned 22.15% in the year to 31 October. Management costs are 0.49% per annum and distributions are made twice annually.
Top holdings include CSL Limited (ASX: CSL) (4.6%), Resmed Inc (ASX: RMD) (4.3%), Suncorp Group Ltd (ASX: SUN) (3.9%), Sonic Healthcare Ltd (ASX: SHL) (3.8%), Brambles Limited (ASX: BXB) (3.8%), Insurance Australia Group Ltd (ASX: IAG) (3.8%), Cochlear Limited (ASX: COH) (3.7%) and Telstra Corporation Ltd (ASX: TLS) (3.7%).
The Betashares Global Sustainability Leaders ETF (ASX: ETHI) provides exposure to 100 large global shares (ex Australia) which are climate change leaders and not materially engaged in activities inconsistent with responsible investment considerations. Exclusion screens are applied to remove companies with exposure to fossil fuel, gambling, armaments, uranium/nuclear energy, junk food, animal cruelty, pornography, human rights and supply chain concerns.
The fund returned 31.15% in the year to 29 November. Management costs are 0.59% and distributions are made twice yearly. Holdings are distributed across the United States (75.2%), Switzerland (5.0%), Japan (4.4%), Hong Kong (3.1%), Netherlands (2.3%), Denmark (2.1%), Sweden (1.9%), Spain (1.5%), Finland (1.0%) and elsewhere (3.4%).
Top holdings include Apple (4.8%), MasterCard (4.3%), Visa (4.1%), UnitedHealth Group (4.0%), Home Depot (3.9%), Roche Holding (3.9%), Adobe Systems (2.4%), PayPal Holdings (2.0%), Nvidia Corp (2.0%), and Netflix (2.0%).
Foolish takeaway
Ethical ETFs are a welcome addition to the ETF universe, providing investors with a 'one stop shop' for responsible investing.
