The ASX-listed exchange-traded fund (ETF) BetaShares Global Sustainability Leaders ETF (ASX: ETHI) offers many characteristics that may appeal to investors, not least its global reach.
I think Aussie investors benefit from exposure to the international share market because of the broad range of businesses available outside of Australia.
After all, the ASX share market only accounts for around 2% of the global share market, so it'd be worthwhile to have exposure to some of the other 98%.
And global blue-chip shares appear to have a stronger earnings growth outlook right now than the major blue-chip shares here in Australia, such as the ASX miners and banks.
However, because of how the portfolio is assembled, the BetaShares Global Sustainability Leaders ETF is more than a simple global ASX-listed ETF. Let's take a look.
Ethical screening
Plenty of businesses making big profits around the world come from sectors that some Aussies may not want to be invested in, such as fossil fuels, tobacco and gambling.
The ETHI ETF examines the global share market and conducts several ethical screenings. What remains are the 200 largest 'ethical' businesses classified as climate leaders, as well as a broad range of environmental, social, and governance (ESG) criteria.
According to BetaShares, companies in the BetaShares Global Sustainability Leaders ETF portfolio have no investment exposure to fossil fuel reserves, while 100% of the power generated by the companies involved comes from renewable sources.
The ETF has deemed a number of industries and activities "inconsistent with responsible investment considerations".
Other industries it avoids include gambling, tobacco, uranium and nuclear energy, armaments and militarism, involvement in animal cruelty, chemicals of concern, production of alcohol, payday lending and more.
It also rules out businesses that have no women on the board of directors and companies where there's evidence of human rights violations such as child labour, sweatshops or bribery.
High-quality holdings
After making all those exclusions, what remains within the ASX ETF is, in my view, a high-quality list of companies that are among the global leaders in what they do. These companies already generate strong earnings and have the potential to make plenty more profit in the coming years.
Some of the largest holdings may be very recognisable to many people:
- Nvidia (6% of the portfolio)
- Apple (5.2%)
- Mastercard (4.1%)
- Home Depot (4%)
- Visa (3.9%)
- Toyota Motor (2.6%)
- UnitedHealth (2.1%)
- ASML (1.9%)
- Comcast (1.9%)
- Adobe (1.7%)
Curiously, the ETHI ETF portfolio of ethical companies' returns has been very good for investors.
Great returns by the ASX ETF
BetaShares Global Sustainability Leaders ETF has been a strong-performing fund while also offering good diversification.
Looking at the current sector allocation of the ASX ETF, there are four with double-digit weightings: IT (31.1%), financials (23.3%), healthcare (15.9%), and consumer discretionary (14.3%). Of all the sectors, I'd want the biggest allocation to be IT companies because of their ability to achieve high profit margins and grow earnings faster than other sectors.
Past performance is not a reliable indicator of future returns, but since inception in January 2017 the ETHI ETF has returned an average of 17.2%. It has done well, and it wouldn't surprise me if the fund is able to continue outperforming the S&P/ASX 200 Index (ASX: XJO) over the long term with the global earnings growth outlook for these businesses.
