Assessing the Suitability of the Recent ESG Funds Hitting the Market

KraneShares Global Carbon Transformation ETF (KGHG) is an actively managed ETF that invests in “decarbonization leaders.” These forward-thinking companies operating in carbon-intensive industries could see superior growth relative to their peers and benefit from a re-evaluation and improved ESG scores over the long term.

The fund’s portfolio consists primarily of large-cap stocks spanning the industrial, material, infrastructure, utilitie, energy and technology sectors. And with half of its portfolio in Europe, it also provides U.S. investors with a high level of international diversification. The only drawback is its high 0.89% expense ratio.
 

• Inception Date: March 16, 2022
• Assets Under Management: $2.7M
• Expense Ratio: 0.89%

American Century Investments continued its diversification into the ETF market by launching three responsible investing ETFs in March. These ETFs include the Avantis Responsible U.S. Equity ETF (AVSU), Avantis Responsible International Equity ETF (AVSD) and the Avantis Responsible Emerging Markets Equity ETF (AVSE).

The ETFs apply the same financial science-based approach as Avantis’ other investment strategies with ESG considerations. These funds generally take an exclusionary ESG approach, although the Avantis Responsible International Equity ETF (AVSD) holds Diageo plc – an alcohol business that may be a so-called “sin stock.”
 

• Inception Dates: March – April 2022
• Assets Under Management: Varies
• Expense Ratios: 0.15 – 0.33%

The BNY Mellon Responsible Horizons Corporate Bond ETF (RHCB) invests in corporate bonds issued by companies that demonstrate attractive investment attributes and ESG business practices. The portfolio primarily includes BBB and BB-rated issuers and pays monthly distributions, making it a lucrative option for income investors.

As with the Avantis ETFs, the fund includes various companies that some ESG investors may find questionable, including energy companies and banks that finance fossil fuel projects. That said, the fund still offers a compelling ESG-friendly alternative to conventional corporate bond funds and pays an attractive monthly yield to shareholders.
 

• Inception Date: March 21, 2022
• Assets Under Management: $24M
• Expense Ratio: 0.35%

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ESG funds have become increasingly popular over the past couple of years, drawing in about $1 trillion in capital. As a result, asset managers continue to launch new ETFs into the market, either building their presence or offering investors novel strategies. Investors should watch these new fund launches as potential opportunities for their portfolios.

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