Daily ETF Watch: Low Carbon Fund Planned

FactorShares and Penserra launching ETF that invests in U.S. companies based on their carbon impact.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

Factor Advisors, which launches ETFs using the FactorShares ETF exemptive relief, and Penserra Capital Management are looking to expand the offering of ETFs focused on companies’ carbon footprints. The firms plan to roll out the Etho Climate Leadership U.S. ETF (ETHO) on the NYSE Arca exchange.

The fund will track an index provided by Etho Capital that covers companies that are among the least damaging in terms of their carbon impacts regarding their peers within their respective industries.

According to the prospectus, the index methodology takes into account a company’s total greenhouse gas emissions via its “operations, fuel use, supply chain and business activities,” and divides that total by the company’s market capitalization. The index includes any U.S. company in its selection universe that has a carbon impact that is 50 percent lower than the average for its industry.

Companies are considered for inclusion if they have at least $100 million in market capitalization and are not involved in certain industries or business activities. Companies operating in the energy sector; the tobacco, aerospace and defense space; or the gambling, gold and silver industries are excluded automatically, regardless of their carbon footprints. It’s not clear if this filter is in place because those kinds of businesses typically have high carbon footprints or if it is an added social responsibility screen.

The index equal-weights its components and rebalances annually in November. The prospectus notes that typically the benchmark has 400 to 430 components.

The $219 million iShares MSCI ACWI Low Carbon Target ETF (CRBN | D-94) and the $89 million SPDR MSCI ACWI Low Carbon Target ETF (LOWC | D-94) have a similar focus, but are global in their scope. Both track the same MSCI index and launched in late 2014. While they do not exclude any companies included in their benchmark’s parent index, the MSCI ACWI, the lower a company’s carbon impact, the higher the weighting it receives in their portfolios.

The filing did not include an expense ratio.

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.