The ARK Transparency ETF (CTRU), as its name implies, focuses on transparent companies, but with that, the new exchange traded fund fits the mold of sustainability.
Actually, CTRU arguably enhances sustainability investing, and the newest addition to the ARK Investment Management suite of ETFs might have come to market at the right time (December 2021) because it’s clear that funds focusing on sustainability generated impressive performances last year.
“The Morningstar U.S. Sustainability Leaders Index–representing the 50 U.S. companies with the best ESG scores as measured by Sustainalytics (a division of Morningstar)–returned 33.3% for the year, beating the broader U.S. market by more than 8%,” says Morningstar analyst Lauren Solberg. “It wasn’t just companies ranked the very highest in ESG scoring that outperformed. Morningstar’s broadest basket of sustainable companies, measured by the 373-stock Morningstar U.S. Sustainability Index, returned 29.1% in 2021, 3 percentage points better than the overall U.S. stock market.”
For its part, the newly minted CTRU tracks the Transparency Index. While that benchmark doesn’t directly emphasize environmental, social, and governance (ESG) investing principles in the traditional sense, it does have an ESG feel to it, as members of the Transparency Index are significantly less likely to engage in financial fraud and environmental offenses than companies outside the index.
Additionally, CTRU could be a compelling choice for long-term investors because 2021 wasn’t the first time that sustainability funds beat traditional rivals. Rather, it was the extension of a multi-year trend, and while that performance won’t necessarily repeat every year, sustainability is a valid long-term attribute.
“With the numbers posted in 2021, sustainable investing strategies continue their run of beating conventional market benchmarks over longer periods,” adds Solberg. “Six out of the 10 U.S. sustainability indexes beat their benchmarks over the trailing three-year performance period, as did seven over the five-year period.”
As is the case with other ARK ETFs, CTRU has a heavy growth feel, allocating nearly 69% of its weight to technology and consumer discretionary stocks, many of which are consumer internet names. Those sectors are staples in many ESG funds, but CTRU significantly overweights those groups relative to traditional counterparts.
“The tech and consumer cyclical sectors had a more notable impact on sustainability portfolios. Over the past five years, the Morningstar U.S. Technology Index has grown more than 30% and the Morningstar U.S. Consumer Cyclical Index is up 24%, ahead of all other U.S. sector indexes–and both the Morningstar U.S. Sustainability Leaders and Morningstar U.S. Sustainability indexes carry extra concentrations in those two areas,” notes Solberg.
For more news, information, and strategy, visit the Disruptive Technology Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.