Fossil Fuel Free ETFs That Aren't

March 14, 2018

No Performance Boost From Dirty Energy

What's remarkable about these results is there appears to be no clear performance advantage to including fossil fuel energy companies in an ESG portfolio.

None of these 10 ETFs with outsized "dirty energy" allocations is among the top-10-performing ESG ETFs over the past 12 months. In fact, most of the top 10 performers had extremely low weightings in fossil fuel companies—two had no allocation to them at all:

 

Top 10 ESG Performers
Ticker Fund 1-Year Performance % Invested In Fossil Fuels
GRN iPath Global Carbon ETN 153.40% N/A
CXSE WisdomTree China ex-State-Owned Enterprises Fund 69.50% 1.05%
TAN Guggenheim Solar ETF 43.36% 0.00%
XSOE WisdomTree Emerging Markets ex-State-Owned Enterprises Fund 42.12% 4.75%
ESGE iShares MSCI EM ESG Optimized ETF 35.79% 7.04%
EEMX SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF 32.87% 2.87%
PBW PowerShares WilderHill Clean Energy Portfolio 32.43% 2.71%
PZD PowerShares Cleantech Portfolio 30.05% 0.00%
BOSS Global X Founder-Run Companies ETF 29.26% No data
QCLN First Trust NASDAQ Clean Edge Green Energy Index Fund 27.03% 2.01%

Sources: ETF.com, FactSet, Fossil Free Funds. Data as of March 12, 2018.

 

At the same time, four of the ETFs with the highest allocations to fossil fuel companies—FAN, ESGS, ICLN and NULV—were also among the 10 worst one-year-performing ESG ETFs. An additional one, ESGW, was the eleventh-worst one-year performer:

 

Worst 10 ESG Performers
Ticker Fund 1-Year Performance % Invested In Fossil Fuels
ESGS Columbia Sustainable U.S. Equity Income ETF 15.28% 18.34%
ICLN iShares Global Clean Energy ETF 15.01% 18.04%
NULV NuShares ESG Large-Cap Value ETF 14.78% 12.53%
ISMD Inspire Small/Mid Cap Impact ETF 14.53% 9.11%
NUMV NuShares ESG Mid-Cap Value ETF 13.53% 9.32%
FAN First Trust Global Wind Energy ETF 11.95% 24.10%
ESGL Oppenheimer ESG Revenue ETF 11.66% 9.54%
GRNB VanEck Vectors Green Bond ETF 10.97% N/A
YLCO Global X YieldCo Index ETF 9.08% No Data
WIL Barclays Women in Leadership ETN 7.98% N/A

Sources: ETF.com, FactSet, Fossil Free Funds. Data as of March 12, 2018.

 

Rather than conventional energy firms adding a boost to ESG ETF returns, as many might assume, it is in fact the opposite: Conventional energy companies drag down performance of ESG ETFs that include them. The higher an ESG ETF's weighting in "dirty energy," the worse its returns become.

In large part, this is because the conventional energy market, driven by oil and natural gas producers, has vastly underperformed the broader market on a 12-month basis. For example, the Energy Select Sector SPDR Fund (XLE), which tracks the Big Oil giants, is only up 0.85% on a one-year basis; in contrast, the SPDR S&P 500 ETF Trust (SPY) is up 20.02%.

 

Find your next ETF

CLEAR FILTER