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Pollution and global warming are now blazing issues, raising panic alarms from pole to pole. The louder the moan of panic, the faster the human awareness toward protecting the environment wakes up. The tendency to save the environment and be socially responsive seems to be an order of the day. The financial world also appears to be embracing the theme, which is why a surge in eco-friendly and socially conscious ETFs are now prevalent. One can have a fair understanding of this intention looking at the different areas of the ETF industry. There are clean-energy ETFs, low-carbon ETFs and even environment-oriented ETFs at investors’ disposal. Most recently, the market has received a new environment-pro ETF namely Etho Climate Leadership U.S. ETF (NYSEARCA: ETHO ) from the investment management company Etho Capital in partnership with Factor Advisors. How Does ETHO Work? ETHO follows “an equally weighted all-cap equity index that selects the most carbon-efficient companies across industries. The index is completely divested of fossil fuel companies, as well as those in tobacco, weapons and gambling, and undergoes rigorous screening with expertise from global NGO partners and based on ESG (environmental, social and governances) performance data,” as per the issuer . To accomplish the objective, the index studies total greenhouse gas emissions from over 5,000 equities to choose ‘climate leaders’ in each industry. The index rules out all companies operating in the field of oil, natural gas and coal. Any industry with weak ESG standards does not get an entry to the index followed by ETHO. To add to this, experts’ views related to socially responsible investing are also considered in the stock selection. This results in a 400-stock portfolio having a carbon emissions profile that is 50-70% lower per dollar invested than a conventional broad-based benchmark. No stock accounts for more than 0.56% of the basket. Netflix (NASDAQ: NFLX ), M&T Bank Corp. (NYSE: MTB ) and Energy Recovery Inc. (NASDAQ: ERII ) are top three holdings of the fund, which charges 75 bps in fees. How Could it Fit in a Portfolio? Building a ‘low-carbon’ economy and fighting global warming have become a common theme among the most developed and emerging nations. Recently, China announced that it intends to build a pollution-free environment. And, as part of this mission, the president of China and the U.S. president Barack Obama struck a deal to lessen carbon emissions. The agreement calls for carbon emission reductions by 26% to 28% in the U.S. by 2025. It also includes the first-ever commitment by China to stop emissions from growing by 2030. President Obama has always been active in cleaning up carbon pollution. A proposed Environmental Protection Agency rule seeks to reduce 30% carbon emission from power plants by 2030, compared to the levels in 2005. As per ETHO press release , in September 2015, it was declared that institutions and individuals managing over $2.6 trillion in assets under management are to divest fossil fuel. This figure is likely to go up, as 84% of the millennials support the ESG theme in investing, and close to $41 trillion will move to millennials from baby boomers in the coming 35 years, per the issuer. In short, this ETF can be a great tool to invest in amid the fast-growing awareness of clean energy. In any case, the overall energy sector has been in a lull lately on steeply declining prices, giving investors one more reason to bet on this new ETF. President Obama’s refusal to the planned Keystone XL pipeline and the New York attorney general’s new investigation of Exxon Mobil (NYSE: XOM ) for confusing the public about the impact of climate change also hint at the underlying risks associated with fuel-related investing, per the issuer. By investing in ETHO, investors can also avoid such threats. Competition The competition in this space is negligible with a handful of products sharing the carbon-efficiency theme. There are two low-carbon funds in the market namely The SPDR MSCI ACWI Low Carbon Target ETF (NYSEARCA: LOWC ) and iShares MSCI ACWI Low Carbon Target ETF (NYSEARCA: CRBN ). The nature of these two funds is not exact to ETHO as the duo has global footprint, while the newbie revolves around U.S.-based companies. Since the operating methodology of ETHO is a little different to both low-carbon ETFs, ETHO should not face direct competition from them. However, the duo charges just 20 bps in fees, much lesser than ETHO, which could be a deterrent in amassing investors’ assets for the latter. Original post . Scalper1 News
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