The BetaShares Global Sustainability Leaders ETF (ASX: ETHI) is a leading exchange-traded fund (ETF) pick in my opinion. I'm going to tell you why I think it's a top ASX ETF to own in 2024 and beyond.
First, I'll point out that the ETHI ETF is one of the larger ETFs on the ASX, with net assets of around $3 billion.
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Ethical leaders
This investment provides an ethically screened portfolio of large global stocks that have been identified as 'climate leaders' and have also passed screens to exclude companies engaged in activities "deemed inconsistent with responsible investment considerations".
It excludes industries like fossil fuels, gambling, tobacco, armaments, animal cruelty and payday lending. There must also be no human rights concerns, and companies must have gender diversity on the board.
The ETHI ETF gives examples of businesses it has excluded. It's not invested in McDonald's because a majority of its revenue comes from junk food, Goldman Sachs has significant lending to fossil fuel projects, General Electric is a major military and armaments manufacturer, and Tesla is "implicated in workplace relations related controversies."
The annual management cost is just 0.59%, which I think is good value for how much ESG screening work has been done.
Strong businesses
These are not just, small ethical businesses. The ETHI ETF starts with the entire global share market and what remains after the screening are 200 of the biggest (and ethical) companies from across the world.
When we look at the ASX ETF's holdings, they are some of the world's leading businesses at what they do, including Nvidia, Visa, Apple, Mastercard, Toyota, Home Depot, ASML, Salesforce, Unitedhealth, Novo Nordisk, SAP and Adobe.
Many of these businesses rank well on quality metrics such as their return on equity (ROE), earnings stability and balance sheet health.
Pleasingly, just over a third of the portfolio is invested in IT businesses, which is usually a good sector for delivering growth.
Great returns for this ASX ETF
It may not be a surprise to learn that this collective group of businesses have done very well in terms of shareholder returns.
According to BetaShares, the ETHI ETF has delivered an average return per annum of 18.7% since its inception in January 2017 to 28 March 2024. Past performance is not a reliable indicator of future performance when it comes to returns of that size, considering the huge gains its Nvidia holding has seen.
In the past three years, the average return per annum was 15%, which seems a bit more realistic, but still very, very good.
