The concepts of environmental, social and governance (ESG) and socially responsible investing (SRI) continue gaining traction. One of the key elements many investors are examining is reduced exposure to fossil fuels producers.
That’s an objective dozens of ETFs can help advisors and investors accomplish. Fortunately, some of these funds have decent track records as measured by time and offer straightforward approaches, including the SPDR S&P 500 Fossil Fuel Free ETF (SPYX).
SPYX “seeks to allow climate change-conscious investors to align the core of their investment strategy with their values by eliminating companies that own fossil fuel reserves from the S&P 500,” according to State Street.
The energy market, which is viewed as a proxy for economic growth, has been among the worst-hit assets in response to the growing threat of the spreading coronavirus in China and its effects on the global economy. China is the second largest economy in the world and the biggest importer of oil, and many anticipated a slowdown in the emerging economy due to the disruptions form widespread quarantines that Beijing has implemented to limit the spread of the novel virus.
Translation: SPYX’s limitations on traditional energy stocks is a short- and a long-term advantage.
SPYX Sparks
The $511.47 SPYX has mere 1% weight to energy stocks and tracks the S&P 500 500 Fossil Fuel Free Index. Due to the energy sector’s struggles this year, SPYX is outperforming traditional S&P 500 ETFs by 30 basis points year-to-date.
“In fact, at the end of 2019, SPYX still managed to produce a strong 32% return. That basically matches the market, and overcomes one of the biggest critiques of ESG ETFs, which is their potential under-performance,” reports InvestorPlace. “With it, investors avoid oil producers, refineries, coal miners and similar commodity-based stocks. The best part is that SPYX still offers a ton of broad market exposure — and currently, it holds 484 different large-cap stocks.”
Another perk of SPYX, though not necessarily by intent, is that the fund fits the bill as an environmentally conscious play. That a time when advisors and investors are increasingly warming to environmental, social and governance (ESG) strategies.
More and more investors are asking for these ESG-focused products that not only achieve target returns but also focus on topics investors care about, such as climate change or renewable energy sources.
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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.
