The Bottom Line: The funds lack an established track record, are generally offered at higher expense ratios and their sustainable investing strategies¹ are not unique.
Investor considerations
Newly launched in June 2021, the six new EFTs are still small in size, they lack an established track record and, with the exception of two ETFs, their expense ratios exceed the lowest quartile. When combined with the fact that these funds don’t offer sufficiently unique or differentiated fundamental or sustainable investing strategies relative to currently available offerings, investors, at this time, would be better guided to seek out more attractive alternatives from the existing universe of sustainable ETFs or mutual funds.
Observations
- Six new sustainable ETFs were launched in the month of June 2021, the largest number of sustainable ETF launches in one month so far this year. 14 ETFs in total were launched in Q2 and eight were introduced in Q1.
- Five of these are actively managed ETFs while five of the six funds are equity-oriented; in total, the six funds came to market with $32.8 million in net assets. Of the five actively managed funds three ETFs are non-transparent, that is, they publish a daily “tracking basket” of securities held rather than their entire portfolio of securities holdings. (Designated by the # symbol in Table 1).
- The six ETFs levy an average expense ratio of 59 bps, ranging 39 bps to 99 bps; the first quartile cut-off is at 39 bps, representing the upward limit of the lowest fee ETFs across the six new offerings in June. This is higher than the first quartile cut-off of 20 bps across the entire universe of sustainable ETFs—146 funds in total.
- Sustainable investing strategies offered by these funds have adopted ESG integration or thematic investing approaches. The latter don’t qualify securities on the basis of an ESG evaluation. The sustainable investing approaches are described in Table 1.
| Fund Name | Investment Adviser/Sub-adviser | TNA ($M) | Expense Ratio (bps) | Sustainable Investing Strategy/Approach |
| American Century Sustainable Growth ETF# (actively managed) | American Century Investment Management, Inc. | 5.2 | 39 | ESG integration. Quantitative analysis of ESG factors to arrive at sector specific ESG scores. Holdings include securities that fall within the top three quartiles relative to the Russell 1000 Growth Index. |
| Amplify Cleaner Living ETF | Amplify Investments LLC, investment adviser Penserra Capital Management LLC, subadvisor | 1.3 | 59 | Thematic. An index fund that seeks to replicate the performance of the Tematica BITA Cleaner Living Index, an index designed to measure the market performance of a basket of publicly listed companies that are identified as creating products or providing services that have the potential for a positive impact on the human body and/or the environment. Securities not subject to ESG evaluations. |
| Asian Growth Cubs ETF (actively managed) | Exchange Traded Concepts, LLC, investment adviser and Kingsway Capital Partners Limited, subadvisor | 2.3 | 99 | ESG Integration, including the exclusion from the portfolio of certain industries and sub-industries relating to defense, fossil fuels, gambling, mining, and tobacco due to ESG considerations. |
| Fidelity® Sustainability U.S. Equity ETF# (actively managed) | FMR | 2 | 59 | ESG Integration. Process relies on FMR’s proprietary ESG ratings process to evaluate the current state of a company’s sustainability practices using a data-driven framework that includes both proprietary and third party data, and also provide a qualitative forward looking assessment of a company’s sustainability outlook. |
| Fidelity® Women’s Leadership ETF# (actively managed) | FMR | 2 | 59 | Thematic, but securities are not subject to ESG evaluations. |
| IQ Mackay ESG Core Plus Bond ETF (actively managed) | IndexIQ Advisors LLC, investment advisor and MacKay Shields LLC, subadvisor | 20 | 39 | ESG Integration. A systematic ESG evaluation approach that scores companies on the basis of three tiers relative to other issuers within the peer group: Outperforming, average and underperforming. Only issuers that fall into the top two tier + companies with improving ESG trends. Also, the fund excludes certain issuers and it also explicitly practices issuer engagements, described below. |
IQ Mackay ESG Core Plus Bond ETF (Cont.). The fund will also not invest in securities of corporate issuers that derive greater than 5% of their revenue from the production, distribution, and services of coal, manufacturing of military equipment, alcoholic beverages, and tobacco products, operation of gambling casinos, and the production or trade of pornographic materials. The fund will also not invest in the securities of corporate issuers determined to not meet human rights, labor standards, environmental, and anti-corruption screening criteria. The subadvisor is also involved in engagement activities focused on understanding an issuer’s sustainability goals and business practices as well as other industry participants engaged in ESG and sustainability initiatives. Engagement is intended to better align mutual interests while impacting change.
