3 Hidden Gem ESG ETFs

June 01, 2020

CHGX does tremendous legwork to ensure it isn't investing in companies whose business practices it defines as objectionable, without wildly impacting the overall sector breakdown of its portfolio. For example, sectorwise, the fund stays surprisingly close to the SPDR S&P 500 ETF Trust (SPY), for example:


Source: ETF Comparison Tool. Data as of May 28, 2020.

 

[To compare two ETFs' costs, performance or portfolio holdings, check out our new ETF Comparison Tool.]

It's not an exact match, for sure. But with as many exclusions as CHGX makes, you'd expect its sector lineup to be more divergent than the broader market than it actually is, making CHGX a potential ESG "replacement" option for U.S. large cap exposure.

For Truly Unique Fixed Income Diversification: SPSK

Religious-based ETFs are not new, but until recently, most iterations on the theme have been Christian in nature.

Over the past few months, however, several Islam-based ETFs have launched, including the Wahed FTSE USA Shariah ETF (HLAL), the SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS) and the SP Funds Dow Jones Global Sukuk ETF (SPSK).

SPSK in particular is striking because it's a fixed income fund, and that may seem a contradiction in terms, as Shariah (the religious law underpinning Islam) prohibits the collection of interest on debt. As a result, Muslims aren't allowed to invest in the vast majority of bonds—which are debt instruments that make regular interest payments to their holders.

SPSK meets this challenge by instead investing in sukuks, which are Shariah-compliant financial certificates that grant holders partial ownership in an underlying asset.

Like bonds, sukuks still make regular payments to investors, but those payments aren't interest-based. They derive from the earnings the underlying asset generates—essentially, making sukuks profit-sharing arrangements.

Sukuks are a mainstay of Islamic finance, but they can be difficult for U.S.-based investors to access, as few (if any) Western-based fixed income ETFs currently offer exposure to them and individual sukuks typically trade in over-the-counter transactions. So SPSK really is offering first-of-its-kind exposure to the market.

Plus, with performance that tends to look nothing like that of the bond market and exposure to Middle East and North African countries not typically covered by bond indexes, SPSK also offers real diversification to a fixed income portfolio—something that earned it the ETF.com award for the best new international fixed income ETF of 2019.


Source: ETF.com. Data as of May 28, 2020.

 

Is there an ESG ETF that you feel hasn't gotten enough attention? Write to us about your favorites at [email protected].

Contact Lara Crigger at [email protected]

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