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Try These New Flavors of Actively-Managed ESG ETFs

ESG funds have come under fire over the past few months. Some argue that these funds hurt retirement portfolios by ignoring attractive businesses, while others see ESG as more of a money grab than an effort to address societal problems. But, in either case, not all ESG ETFs are the same, and investors shouldn’t ignore the asset class entirely.

In this article, we’ll examine two recently launched actively-managed ESG ETFs offering a unique spin on the market.

See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.

A Dual Focus on Energy Sustainability

Horizon Kinetics’ Energy and Remediation ETF (NVIR) invests in domestic and foreign companies expected to benefit from the increasing focus on climate change and environmentally-sensitive carbon-based energy production. Unlike many other ESG funds, NVIR holds many hydrocarbon companies in its portfolio with a “dual, reality-based mandate.”

In particular, the fund managers select fundamentally attractive, carbon-based energy companies and remediation companies that help generate more environmentally-sensible carbon-based energy. The energy side focuses on royalty companies, while the remediation side focuses on water recycling, oil rig electrification, and related projects.

The fund may appeal to would-be ESG investors concerned about a lack of exposure to the fossil fuel industry. Bringing these companies into the fold with a focus on remediation could be an attractive option for those looking for a more pragmatic approach to climate change. But it could turn off environmentalists looking to rid their portfolios of oil.

The portfolio’s most significant holdings include:

  • Cheniere Energy Inc. (4.00%)
  • EQT Corp. (3.94%)
  • Diamondback Energy Inc. (3.87%)
  • Suncor Energy Inc. (3.79%)
  • Denbury Inc. (3.77%)

With a concentrated portfolio of 30 to 50 companies, the fund has about $2 million in net assets and an expense ratio of 0.85%.

A Celebrity-Driven, International Fund

Calamos Antetokounmpo Global Sustainable Equity Fund (SROI) invests in companies with above-average growth potential and favorable ESG characteristics. The latter leverages exclusionary screens, materiality assessments, and environmental/social impact scoring to select opportunities.

In addition to its association with Giannis Sina Ugo Antetokounmpo, a well-known professional athlete, the fund’s focus on foreign investments set it apart from the competition. According to its prospectus, it maintains at least 40% of net assets in non-U.S. equity securities, including emerging markets, across a minimum of five countries.

The fund might appeal to investors who want to align themselves with a well-known athlete and invest in high-quality companies seeking to address non-financial risks related to governance, ecological impact, and human development. The international tilt could also appeal to those looking to add more geographic diversification.

The fund’s largest holdings include:

  • Apple Inc. (3.03%)
  • Microsoft Inc. (2.91%)
  • Google Inc. (2.18%)
  • Visa Inc.(1.60%)
  • Applied Materials Inc. (1.51%)

Currently, the fund has about 120 securities in its portfolio and charges a 0.95% expense ratio.

The Bottom Line

ESG ETFs have come under fire over the past few months, but investors shouldn’t lump them all into the same category. For instance, the NVIR ETF offers exposure to fossil fuel companies, and the SROI ETF provides international exposure. Investors may consider these ESG ETF options depending on their portfolio’s requirements.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.

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Mar 09, 2023