A new socially-responsible ETF entered the ETF world in the name of Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free ETF CHGX. It is the issuer’s first product. The fund targets fossil fuel free as well as socially responsible investing.
Equities that are associated with social factors like low carbon emissions and righteous business practices come under the socially responsible theme. On the other hand, companies engaged in the manufacture and sales of products like tobacco, alcohol and arms are not considered as socially responsible investment options.
Inside CHGX
The product looks to follow the Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free Index. The index first takes into account the constituents of the Solactive US Large & Mid Cap Index, normally the 1,000 largest U.S.-listed common stocks and real estate investment trusts (REITs). Then those stocks are screened on the basis on ESG criteria, as per the prospectus.
Normally companies manufacturing pesticides or military weapons, operating in corrupt business practices or in “exploitative relationships with labor and Indigenous people” do not get an entry into the index. The fund charges 75 bps in fees. No stock accounts for more than 1.24% of the 100-stock fund.
How Does It Fit in a Portfolio?
Socially responsible investing is hot at present. As per the latest data by Morningstar, 70% of all investors are interested in socially responsible investing, while more than 80% of millennials intend to be socially responsible while making investment decisions (read: Guide to Socially Responsible ETFs).
Apart from the social standpoint, this investing practice has a valid reason for increased gains. As per the source, lesser focus on environmental issues by the companies may result in lawsuits, fines, and damages. For example, “businesses that use less water and less power have lower costs and operate more efficiently.”
And we all know that building a ‘low-carbon’ economy and battling the unsafe effects of greenhouse gases in the atmosphere have lately become a global task. Not only the developed economies, the emerging ones are also pushing themselves to attain this goal. So, the concept of the newly-launched fund is pretty intriguing.
Competition
However, with the rise of socially-responsible concept, the space is gradually getting crowded. There are some funds with almost same investment objectives operating in the space.
iShares MSCI ACWI Low Carbon Target CRBN
The $471.4-million fund looks to give exposure to developed and emerging market equities with a lower carbon exposure than that of the broader market. The United States takes the top position with about 50.26% weight while Japan (7.61%) and United Kingdom (5.79%) occupy the next two spots. The fund charges 20 bps in fees (read: Be Environment Friendly with Hot Clean ETFs).
SPDR S&P 500 (MX:SPY) Fossil Fuel Reserves Free ETF SPYX
The $176.3-million fund looks to track the S&P 500 Fossil Fuel Free Index. Information Technology is the top sector with about 24.65% exposure followed by Financials (14.45%). The fund charges 20 bps in fees.
Bottom Line
Both low-carbon funds charge lesser than CHGX. So, to make a killing in the segment, the new fund needs to promote its socially-responsible aspect more than its fossil-fuel free aspect.
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SPDR-SP5 FF RSV (SPYX): ETF Research Reports
ISHARS-M L CRBN (CRBN): ETF Research Reports
CHNG-FIN DV IMP (CHGX): ETF Research Reports
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Zacks Investment Research