As more new exchange traded funds have come to market over the years (the number of new launches is approaching 200 for 2014), the feeling that many of these ETFs have niche focuses has increased.
And with those niche focuses comes opacity and hard-to-understand investment concepts. At least that has been the feeling of some investors. However, some hyper-focused new ETFs are actually more straight forward in their approach then their names imply.
Take the example of the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC), which debuted last week.The MSCI ACWI Low Carbon Target ETF “seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the MSCI ACWI Low Carbon Target Index,” according to State Street.
The low carbon emphasis may imply a confusing investment theme or that LOWC is home to a slew of no-name stocks, but neither is true.
LOWC’s underlying index “is designed to address two dimensions of carbon exposure—carbon emissions and fossil fuel reserves. By overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, the Index aims to reflect a lower carbon exposure than that of the broad market,” according to State Street.
Another way of looking at LOWC is that the ETF is home to an array of familiar, large-cap companies that hail from multiple sectors, including energy. Overall, LOWC holds nearly 1,300 companies, indicating the ETF has a deep bench and that it is not excessively concentrated in just a small number of stocks.
The ETF’s top-10 holdings combine for just over 8% of the fund’s weight. That group includes six Dow components along with Apple (NasdaqGS: AAPL) and Wells Fargo (NYSE: WFC).
The new ETF is also a global fund, but the U.S. occupies over 51% of the geographic weight with no other country accounting for more than 7.2%. LOWC features exposure to 44 countries, including 21 emerging markets.
Financial services is LOWC’s largest sector allocation at almost 23.2% with technology accounting for 11.6%. Industrials, health care, consumer discretionary and consumer staples also receive double-digit allocations while energy and materials, two groups not often associated with being low carbon fare, combine for less than 11% of the new ETF’s weight.
LOWC charges 0.3% per year.
ETF Trends editorial team contributed to this article. Tom Lydon’s clients own shares of Apple.