Investing

Why ESG Investing May Become Problematic With Overlaps and Redundancy

The ARK Innovation ETF was shown to have $1.62 billion in assets under management, per its own website, and to have a 0.75% expense ratio as it is an actively managed fund. ETFdb.com shows that it has 37 current holdings, and these are its top 15 holdings by weighting:

  • Tesla (TSLA), 10.79%
  • Stratasys (SSYS), 7.75%
  • Invitae (NVTA), 7.62%
  • Illumina (ILMN), 6.07%
  • Square (SQ), 5.64%
  • NanoString Technologies (NSTG), 4.57%
  • Intellia Therapeutics (NTLA), 4.47%
  • Nvidia (NVDA), 4.28%
  • CRISPR Therapeutics (CRSP), 3.98%
  • Editas Medicine (EDIT), 3.69%
  • Twitter (TWTR), 3.41%
  • Veracyte (VCYT), 2.71%
  • Spotify Technology (SPOT), 2.39%
  • Zillow (Z), 2.17%
  • Baidu (BIDU), 2.11%

SPDR SSGA Gender Diversity Index
> Year-to-date gain: 17.4%
> Year-over-year gain: 8.4%

Another ETF that is not solely ESG-focused that fits within the social aspect of the goals would be the SPDR SSGA Gender Diversity Index ETF (SHE). This company tracks the SSGA Gender Diversity Index and has $288 million in assets under management with a 0.20% expense ratio. With a total of 166 holdings in all, ETFdb.com shows its top 15 holdings by weighting as follows:

  • Johnson & Johnson (JNJ), 8.92%
  • Mastercard (MA), 6.00%
  • Home Depot (HD), 5.85%
  • Coca-Cola (KO), 5.28%
  • Wells Fargo (WFC), 4.77%
  • PepsiCo (PEP), 4.51%
  • Amgen (AMGN), 2.82%
  • Texas Instruments (TXN), 2.45%
  • Starbucks (SBUX), 2.42%
  • U.S. Bancorp (USB), 2.12%
  • Caterpillar (CAT), 1.86%
  • TJX Companies (TJX), 1.64%
  • ConocoPhillips (COP), 1.61%
  • S&P Global (SPGI), 1.43%
  • Ecolab (ECL), 1.30%

SPDR S&P 500 Fossil Fuel Reserves Free
> Year-to-date gain: 19.3%
> Year-over-year gain: 11.0%

There is also the SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX), which tracks the S&P 500 Fossil Fuel Free Index. The fund has $372 million in assets under management and a 0.20% expense ratio. It is focused on S&P 500 companies that are not involved in operations that generate, drill for or service fossil fuels nor which require storage of fossil fuel reserves. Its holdings are deemed to be more climate cautious.

The ETFdb.com site shows it to have 485 holdings, and the top 15 by weighting were listed as follows:

  • Microsoft (MSFT), 4.41%
  • Apple (AAPL), 3.73%
  • Amazon.com (AMZN), 3.47%
  • Facebook (FB), 1.97%
  • Berkshire Hathaway (BRK.B), 1.75%
  • Johnson & Johnson (JNJ), 1.56%
  • JPMorgan (JPM), 1.54%
  • Alphabet (GOOGL), 1.40%
  • Alphabet (GOOG), 1.40%
  • Visa (V), 1.29%
  • Procter & Gamble (PG), 1.18%
  • Bank of America (BAC), 1.09%
  • AT&T (T), 1.05%
  • Disney (DIS), 1.04%
  • Pfizer (PFE), 1.02%

While the more recent ESG funds seem by and large to be getting the assets at the current time, the reality is that there is a huge overlap among most ESG funds. Many of these companies are large-cap stocks, and some investors will wonder if they should truly be included in an ESG theme due to who they do business with and what sort of businesses they may own.

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