Two hot themes combined in new ETF fund filing: Cyber and ESG

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The Bottom Line: A new ETF registration in April by Alpha Architect seeks to combine two hot themes, cyber and ESG, in a concentrated portfolio.

Two hot themes combined in new ETF fund filing: Cyber and ESG

In addition to four newly launched thematic sustainable ETFs that together added about $1.9 billion in assets during the month of April through May 4th, ten new sustainable ETF SEC filings were also recorded during this interval. Refer to Tables 1a and 1b. One of these, in particular, caught our attention because the product attempts to combine two hot themes into a single actively managed ETF offering, namely crypto and environmental social and governance (ESG) integration. A launch date has not yet been established.

Based on an SEC filing dated April 14, 2021, Alpha Architect ETF Trust registered its intention to launch the Viridi ESG Crypto Mining ETF. According to the registration statement, the ETF seeks to generate capital appreciation by investing in U.S. and non-US equity securities of companies actively involved in the entire spectrum of cryptocurrency mining, from producers of computer chips, to manufacturers of computer equipment, to directly investing in market participants creating cryptocurrency themselves. The fund intends to invest in approximately 15-30 companies and considers itself to be non-diversified. The fund will not itself invest directly in cryptocurrencies.

All fund investments will be screened on the basis of certain environmental, social and corporate governance impact criteria, and selected cryptocurrency industry companies will emphasize companies that maintain robust and sustainable ESG policies. To this end, the fund’s portfolio managers will employ an integration policy, which includes an evaluation of companies based on their current and anticipated ESG policies. The fund’s strategy will rely on an internal evaluation and ranking strategy for determining a company’s ESG policies. Given the high energy usage of the crypto mining industry, a primary ESG focus will be reducing negative environmental impacts of mining and promoting environmental sustainability. For example, a potential company’s policy to prioritize renewable energy sources for business operations or allocation of funds towards purchasing carbon offsets would be viewed positively. Also taken into account are changes in a company’s ESG strategy and/or changes in a company’s ESG disclosures. More specific details regarding the nature of ESG policies and how such policies are scored, for one, are not provided in the registration statement.

The fund will be managed by Empowered Funds, LLC, a Broomall, PA based firm with 11 employees and 1 client with $1.02 billion in assets1. Empowered is 100% owned by Alpha Architect LLC which is, in turn, 100% owned by Empirical Finance, LLC. The fund is to be sub-advised by New Gen Minting, an Issaquah, WA-based firm. The fund is to be sub-advised by New Gen Minting, an Issaquah, WA-based firm about which limited information is available.

Table 1a: New ETF launches
ETF NameAssets ($MM)
BlackRock US Carbon Transition Readiness ETF1,342.3
BlackRock World ex US Carbon Transition Readiness ETF591.2
Global X Clean Water ETF3.1
Invesco MSCI Green Building ETF5.0
Notes of Explanation: New ETF launches listed in alphabetical order; New ETF registrations listed in order of registration date. (1) Source: ADV dated February 15, 2021.
Note of Explanation: While definitions continue to evolve, sustainable investing refers to a range of five overarching investing approaches or strategies that encompass: values-based investing, negative screening (exclusions), thematic investing, impact investing and ESG integration Shareholder/bondholder engagement and proxy voting may also be employed along with one of more of these strategies that are not mutually exclusive. Prepared by: Sustainable Research and Analysis LLC.
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