Daily ETF Watch: 2nd Carbon Fund Launches

December 09, 2014

(Editor's note: A previous version of this story erroneously said that "LOWC," a fund from SSgA, had an annual expense ratio of 30 basis points. After a fee waiver of 10 basis points, the fund's expense ratio is actually 20 basis points. A corrected version follows. We regret the error.)

iShares, the world’s largest ETF company, today launched a carbon-targeting fund that is based on the same index as a fund rolled out by State Street Global Advisors last month. Both funds have the same annual expense ratio after fee waivers that dropped the full price stipulated in each fund's prospectus.

The iShares MSCI ACWI Low Carbon Target ETF will trade with the symbol “CRBN” and comes with a net annual expense ratio of 20 basis points, or $20 for each $10,000 invested. SSgA’s SPDR MSCI ACWI Low Carbon Target ETF (LOWC) also has a net annual expense ratio of 20 basis points.

Both funds reflect business-development sensibilities among fund sponsors that are built on research suggesting climate change is linked to carbon emissions. Such gases contribute to the so-called greenhouse effect and rising temperatures.

While a tough row to hoe, scientists argue that the only way to slow the temperature rise is to cut carbon emissions. That's the idea behind the index and the funds: Companies with relatively low carbon profiles are likely to be rewarded over time in the form of rising valuations.

Both ETFs have their primary listings on NYSE Arca, and both built around the same index, the MSCI ACWI Low Carbon Target Index.

State Street’s LOWC has net assets of slightly more than $22 million, according to information posted on the company’s website.

Under The Hood Of A Novel Index

The MSCI ACWI Low Carbon Target Index is designed to overweight companies that have low carbon emissions and is derived from the MSCI All Country World Index, which covers emerging and developed markets around the globe, according to the prospectuses of both funds.

Weightings are determined by each company’s “carbon exposure,” which is based on greenhouse gas emissions and potential fossil-fuel-generated greenhouse gas emissions.

The index is designed to maintain a tracking error within 30 basis points of the performance of the MSCI ACWI, and limits the weight of a company to no more than 20 times its weight in the MSCI ACWI.

Country and sector weights must be within 2 percent of their weights in the MSCI ACWI, but the energy sector is not subject to any limits, according to the prospectuses.

Again, the SSgA fund is the first-to-market in terms of carbon emissions weighting. Although there are a number of funds investing in companies involved in clean energy activities, there is not yet a fund that weights companies from every industry by their environmental effect.

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