New Low Carbon Emission ETF Proposed By State Street

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October 10, 2014 4:01pm NYSE:DSI NYSE:KLD

state streetGone are the days when ETF investing ideas revolved around plain vanilla concepts like market capitalization, earnings growth or dividend payments. Tweaks and turns have become common in ETF launches these days to allure investors.


In niche themes, a surge in eco-friendly and socially conscious ETFs was prevalent.

The concept has rapidly gained acceptance and buoyed by this trend, State Street Global Advisors has filed for an ETF consisting of companies releasing less carbon in late September.

Proposed Fund in Detail 

The SPDR MSCI [ACWI] Low Carbon [Target] ETF looks to track an index comprising stocks from developed and emerging markets that emit lower carbons. Per the prospectus, the index emphasizes ‘companies with low carbon emissions relative to sales and per dollar of market capitalization’.

The index of the ETF looks to track a popular benchmark – MSCI ACWI Index – with a focus on minimal ‘carbon exposure’. The forerunner index basically replicates the stock market performance of developed and emerging market countries. The concerned index first screens stocks on the basis of ‘carbon exposure’ from the index, as per the prospectus.

Apart from the focus on carbon, the concerned index looks after several other criteria while choosing the stocks including limitations on tracking error, cap on individual security weight as well as country and sector weight.  Ticker code and expense ratio of the proposed ETF are not yet disclosed.

How Does it Fit in a Portfolio?

Most nations have become eco-friendly at present. Building a ‘low-carbon’ economy and fighting global warming have become a common theme among the most developed and emerging nations. Recently, China announced that it intends to build a pollution free environment.

Demand for renewable sources is growing rapidly for electricity generation across the globe. Thus, many investors might want to support ‘green’ companies or those that responsibly discharge less of the ‘black’ material (read: 3 Clean Energy ETFs for a Green Portfolio).

ETF Competition

This ETF falls in the category of socially responsible funds. Socially responsible investing gives an opportunity to the investor to meet their financial requirements, and at the same time, to mull over the impact of corporations on society.

As a result, many socially conscious ETF rules out companies involved in the manufacture and sales of products like tobacco, alcohol, gambling, and arms and ammunition, and rather revolves around stocks that focus on more well-regarded products.

Though we have seen a flurry of such launches in recent times with the latest one being rolled out in late September in the name of Return on Disability ETN, the space still has plenty of room to grow. Only a few of the socially aware products are presently available in the ETF industry.

These ETFs are iShares MSCI KLD 400 Social ETF (DSI), iShares Socially Focused ETF (KLD), Workplace Equality Portfolio ETF ), Global Echo ETF ,EcoLogical Strategy Shares ETF (HECO) and Pax MSCI North America ESG Index ETF (NASI).

However, since each product is based on the different investment themes, the chance of competition is less. Only GIVE and HECO can give a little competition in accumulating investors’ money to the proposed ETF, if approved.  Notably, both GIVE and HECO play in the ecologically-focused space with a special look at companies that have pro-environment policies and practices.

This article is brought to you courtesy of Zacks.


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