Daily ETF Watch: Carbon Fund Launches

SSgA wins bragging rights as the sponsor behind the world’s first carbon-targeting equities ETF.

Olly
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Managing Editor
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Reviewed by: Olly Ludwig
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Edited by: Olly Ludwig

State Street Global Advisors, the fund sponsor behind the first and biggest U.S. ETF, has launched an equity fund that targets companies within the MSCI’s entire universe of investable equities that have the lowest carbon-emission profiles, the first ETF of its kind.

The SPDR MSCI ACWI Low Carbon Target ETF will trade with the ticker “LOWC” and have an annual expense ratio of 30 basis points, or $30 for each $10,000 invested, according to the latest prospectus detailing the fund. LOWC is likely to be followed by a competing security using the same index, the iShares MSCI ACWI Low Carbon Target ETF.

Both funds reflect business-development sensibilities among fund sponsors that are the consquence of research suggesting climate change is linked to carbon emissions that contribute to the so-called greenhouse effect. While a tough row to hoe, scientists argue that the only way to slow rising temperatures around the planet is to cut carbon emissions. That's the idea behind the index and the funds: Namely that companies with relatively slight carbon profiles are likely to be rewarded over time in the form of rising valuations.

The new SSgA ETF has its primary listing on NYSE Arca.

Under The Hood Of A Novel Index

The proposed funds’ underlying 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, 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 that is 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.

 

Olly Ludwig is the former managing editor of etf.com. Previously, he was a financial advisor at Morgan Stanley Smith Barney and an editor at Bloomberg News. Before that, Ludwig was a journalist at the Reuters News Agency in New York.