This environmental, social and corporate governance (ESG)-focused fund is not your standard index fund that follows a ‘warts and all’ index like the S&P/ASX 200 Index (ASX: XJO).
Most benchmark indexes, like the ASX 200, list companies based on market capitalisation alone. Whether a company is a bank, a coal miner, an alcohol seller or a purveyor of gaming and gambling services, it can join the ASX 200.
It just needs a market cap in the top 200 companies of the ASX. That’s regardless of how good, bad or ugly the company’s business may be.
Well, this ETHI ETF doesn’t quite work this way. The BetaShares Global Sustainability Leaders ETF, according to its issuer, has a different approach:
ETHI aims to track the performance of an index (before fees and expenses) that includes a portfolio of large global stocks identified as “Climate Leaders” that have also passed screens to exclude companies with direct or significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investment considerations.
What’s in an ETHI-cal ETF?
So this fund holds a basket of companies from around the world that, as you might have gathered, can be classed as ‘climate leaders’. As one might imagine, there are no miners here.
Instead, ETHI’s top holdings include the likes of Apple Inc (NASDAQ: AAPL), Visa Inc (NYSE: V), NVIDIA Corporation (NASDAQ: NVDA) and PayPal Holdings Inc (NASDAQ: PYPL). It also holds Adobe Inc (NASDAQ: ADBE), American Express Company (NYSE: AXP) and Toyota Motor Corp (NYSE: TM).
The ETF is weighted 39.4% towards information technology. A further 16% is towards healthcare, 16% towards financials and 13.9% in consumer discretionary shares.
Geographically, 68.8% of its holdings are from the US markets, with 8.7% from Japan, and 3.9% from the Netherlands.
But let’s get to performance. This ETHI ETF’s unit price has returned 17.01% in 2021 so far. And that’s not even including the distribution payment that came investors’ way back in January.
That compares pretty well against the ASX 200 which has returned 9.87% in growth over 2021 so far. That’s almost double in fact (as the headline told you).
Over the past 3 years, ETHI has returned an average of 23% per annum. It’s also given investors an average of 21.61% per year since its inception in January 2017.
For ethically-minded investors, it might be nice to see a fund that can put its money where its mouth is and give an index-beating performance.
Past performance is no guarantee of future success of course. But this ETF certainly gives us a good look at what ethical investing can do.